INSURANCE LIABILITIES

12 Months Ended

Dec. 31, 2017

Insurance Liabilites

LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSE, FUTURE POLICY BENEFITS FOR LIFE AND ACCIDENT AND HEALTH INSURANCE CONTRACTS, AND POLICYHOLDER CONTRACT DEPOSITS

13. Insurance Liabilities

Liability for Unpaid Losses and Loss Adjustment Expenses (Loss Reserves)

Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported and loss adjustment expenses(IBNR), less applicable discount. We regularly review and update the methods used to determine loss reserve estimates. Any adjustments resulting from this review are reflected currently in pre-tax income. Because these estimates are subject to the outcome of future events, changes in estimates are common given that loss trends vary and time is often required for changes in trends to be recognized and confirmed. Reserve changes that increase previous estimates of ultimate cost are referred to as unfavorable or adverse development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost are referred to as favorable development.

Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due from policyholders of approximately $12.6 billion and $12.8 billion at December 31, 2017 and 2016, respectively. These recoverable amounts are related to certain policies with high deductibles (in excess of high dollar amounts retained by the insured through self-insured retentions, deductibles, retrospective programs, or captive arrangements, each referred to generically as “deductibles”), primarily for U.S. commercial casualty business. With respect to the deductible portion of the claim, we manage and pay the entire claim on behalf of the insured and are reimbursed by the insured for the deductible portion of the claim. Thus, these recoverable amounts represent a credit exposure to us. At December 31, 2017 and 2016, we held collateral of approximately $9.5 billion and $9.7 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of credit and funded trust agreements.

The following table presents the roll-forward of activity in Loss Reserves:

Years Ended December 31,
(in millions)		2017		2016		2015
Liability for unpaid loss and loss adjustment expenses, beginning of year	$	77,077	$	74,942	$	77,260
Reinsurance recoverable		(15,532)		(14,339)		(15,648)
Net Liability for unpaid loss and loss adjustment expenses, beginning of year		61,545		60,603		61,612
Losses and loss adjustment expenses incurred:
Current year		21,079		20,232		20,308
Prior years, excluding discount and amortization of deferred gain		1,565		5,788		4,119
Prior years, discount charge (benefit)		187		(422)		(71)
Prior years, amortization of deferred gain on retroactive reinsurance(a)		(284)		-		-
Total losses and loss adjustment expenses incurred		22,547		25,598		24,356
Losses and loss adjustment expenses paid:
Current year		(5,323)		(5,825)		(5,751)
Prior years		(16,241)		(16,908)		(18,205)
Total losses and loss adjustment expenses paid		(21,564)		(22,733)		(23,956)
Other changes:
Foreign exchange effect		788		(463)		(1,429)
Acquisitions(b)		23		-		-
Dispositions(c)		(360)		(1,058)		-
Retroactive reinsurance adjustment (net of discount)(d)		(11,294)		-		20
Reclassified to liabilities held for sale(e)		-		(402)		-
Total other changes		(10,843)		(1,923)		(1,409)
Liability for unpaid losses and loss adjustment expenses, end of year:
Net liability for unpaid losses and loss adjustment expenses		51,685		61,545		60,603
Reinsurance recoverable		26,708		15,532		14,339
Total	$	78,393	$	77,077	$	74,942

(a) Includes $25 million for 2011 retroactive reinsurance agreement with NICO covering U.S. asbestos exposures for the year ended December 31, 2017.

(b)Includes amounts related to the acquisition of Blackboard U.S. Holdings Inc in 2017.

(c) Includes amounts related to dispositions through the date of disposition. Includes sale of insurance operations to Fairfax, United Guaranty and Ascot Underwriting Holdings Limited, and Ascot Employees Corporate Member Limited (Ascot).

(d) Includes discount on retroactiveinsurance in the amount of $1.5 billion for the period ended December 31, 2017.

(e) Represents change in loss reserves included in our sale of certain of our insurance operations and certain assets to Fairfax for the period ended December 31, 2016. Upon consummation of the sale, we retained a portion of these reserves through reinsurance arrangements.

During 2017, we recognized unfavorable prior year loss reserve development of $1.6 billion. This unfavorable development was primarily a result of the following:

• Unfavorable development in U.S. Casualty lines, driven primarily by increases in underlying severity and greater than expected emerging loss experience in accident year 2016 as well as increased development from claims related to construction defects and construction wrap business (largely from accident years 2006 and prior).
• Unfavorable development in U.S. Financial Lines, primarily from Directors & Officers (D&O) policies covering privately owned and not-for-profit insureds. This development was predominantly in accident year 2016 and resulted largely from increases in bankruptcy-related claims and fiduciary liability claims for large educational institutions.
• Higher than expected losses for Europe Casualty and Financial Lines. We observed a significant increase in large claims activity in our Europe long-tail business, with a large proportion emanating from accident year 2016. In addition, we increased our loss reserves as a result of the decision made by the U.K. Ministry of Justice to reduce the discount rate applied to lump-sum bodily injury payouts, known as the Ogden rate.
• In addition we also observed higher than expected losses in Europe property and special risks business driven by unexpected development on various large claims across the property, aviation, marine, and trade credit segments.

Our analyses and conclusions about prior year reserves also help inform our judgments about the current accident year loss and loss adjustment expense ratios we selected.

During 2016, we recognized adverse prior year loss reserve development of $5.8 billion. This unfavorable development was primarily a result of the following:

• Higher than expected losses emerging across several casualty product lines, especially in the recent accident years (generally, 2011 to 2015) driven by increased frequency and severity of claims. This recent accident year loss emergence caused us to increase loss development factors applied across many accident years.
• Loss development factors including workers’ compensation tail factors, also increased due to an observed lengthening of loss reporting patterns relative to prior expectations.
• Increases in loss trend assumptions to reflect the latest observed increases in frequency and severity and the impact of these increased loss trends on expected loss ratios.
• Changes in weights we apply to the various actuarial methods to better align with updated trends.

During 2015, we recognized unfavorable prior year loss reserve development of $4.1 billion. This unfavorable development was primarily as a result of the following:

• Higher than expected loss emergence across U.S. Excess Casualty, U.S. Workers’ Compensation, and U.S. Other Casualtylines as well as European Financial Lines.
• Updated loss development selections in U.S. Excess Casualty, U.S. Financial Lines and U.S. Run-off Casualty Insurance lines, most notably tail factor selections and incorporation of updated industry experience for asbestos liabilities.
• Revised estimates of expected future recoveries from risk-sharing policies in the U.S. Workers’ Compensation business. 
• Updated estimates for extra-contractual obligation claims and unallocated loss adjustment expenses.

The loss development tables below include loss development data by major lines of business for the last ten accident years. The drivers of prior year development are discussed following each of the loss development tables. .

The table below presents the reconciliation of the net liability for unpaid losses and loss adjustment expenses in the following tables to Loss Reserves in the Consolidated Balance Sheets for the year ended December 31, 2017:

	Net liability forunpaid losses and loss adjustment expensesas presented in the disaggregated tables below		Reinsurance recoverable on unpaid losses and loss adjustment expensesincluded in the disaggregated tables below		Gross liability forunpaid losses and loss adjustment expenses
(in millions)
U.S. Workers' Compensation (before discount)	$	6,616	$	6,513	$	13,129
U.S. Excess Casualty		4,802		4,053		8,855
U.S. Other Casualty		5,149		4,793		9,942
U.S. Financial Lines		5,104		1,962		7,066
U.S. Property and Special risks		5,410		968		6,378
U.S. Personal Insurance		1,380		194		1,574
Europe Casualty and Financial lines		6,986		1,156		8,142
Europe Property and Special risks		2,022		632		2,654
Europe and Japan Personal Insurance		2,348		349		2,697
U.S. Run-Off Long Tail Insurance Lines (before
discount)		5,383		3,675		9,058
Total	$	45,200	$	24,295	$	69,495
Reconciling Items
Discount on workers' compensation lines						(3,383)
Other product lines						8,568
Unallocated loss adjustment expenses						3,713
Total Loss Reserves					$	78,393

Loss Development Information

The following is information about incurred and paid loss developments as of December 31, 2017, net of reinsurance. The cumulative number of reported claims, the total of IBNR liabilities and expected development on reported loss included within the net incurred loss amounts are presented in the following section.

Reserving Methodology

We use a combination of methods to project ultimate losses for both long-tail and short-tail exposures, which include:

• Paid Development method: The Paid Development method estimates ultimate losses by reviewing paid loss patterns and selecting paid ultimate loss development factors. These factors are then applied to paid losses by applying them to accident years, with further expected changes in paid loss. Since the method does not rely on case reserves, it is not directly influenced by changes in the adequacy of case reserves.
• Incurred Development method: The Incurred Development method is similar to the Paid Development method, but it uses case incurred losses instead of paid losses. Since this method uses more data (case reserves in addition to paid losses) than the Paid Development method, the incurred development patterns may be less variable than paid development patterns.
• Expected Loss Ratio method:The Expected Loss Ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year. This method may be useful if loss development patterns are inconsistent, losses emerge very slowly, or there is relatively little loss history from which to estimate future losses.
• Bornhuetter-Ferguson method:The Bornhuetter-Ferguson method using premiums and paid losses is a combination of the Paid Development method and the Expected Loss Ratio method where the weight given to each method is the reciprocal of the loss development factor. This method normally determines expected loss ratios similar to the method used for the Expected Loss Ratio method. The Bornhuetter-Ferguson method using premiums and incurred losses is similar to the Bornhuetter-Ferguson method using premiums and paid losses except that it uses case-incurred losses.
• Cape Cod method:The Cape Cod method is mechanically similar to the Bornhuetter-Ferguson method with the difference being that the Expected Loss Ratio estimates are determined based on a weighting of the loss estimates that come from the Paid/Incurred Development Methods. This method may be more responsive to recent loss trends than the Bornhuetter-Ferguson method.
• Average Loss method: The Average Loss method multiplies a projected number of ultimate claims by an estimated ultimate severity average loss for each accident year to produce ultimate loss estimates. Since projections of the ultimate number of claims are often less variable than projections of ultimate loss, this method can provide more reliable results for reserve categories where loss development patterns are inconsistent or too variable to be relied on exclusively.

In updating our loss reserve estimates, we consider and evaluate inputs from many sources, including actual claims data, the performance of prior reserve estimates, observed industry trends, our internal peer review processes, including challenges and recommendations from our Enterprise Risk Management group, as well as the views of third-party actuarial firms. We use these inputs to improve our evaluation techniques, and to analyze and assess the change in estimated ultimate loss for each accident year by product line. Our analyses produce a range of indications from various methods, from which we select our best estimate.

In determining the actual carried loss reserves, we consider both the internal actuarial best estimate and numerous other internal and external factors, including:

• an assessment of economic conditions, including real GDP growth, inflation, employment rates or unemployment duration, stock market volatility and changes in corporate bond spreads;
• changes in the legal, regulatory, judicial and social environment, including changes in road safety, public health and cleanup standards;
• changes in medical cost trends (inflation, intensity and utilization of medical services) and wage inflation trends;
• underlying policy pricing, terms and conditions including attachment points and policy limits;
• change in claims handling philosophy, operating model, processes, and related ongoing enhancements;
• third-party claims reviews that are periodically performed for key classes of claims such as toxic tort, environmental and other complex casualty claims;
• third-party actuarial reviews that are periodically performed for key classes of business;
• input from underwriters on pricing, terms, and conditions and market trends; and
• changes in our reinsurance program, pricing and commutations.

The following factors are relevant to the loss development information Included in the tables below:

• Table organization: The tables are organized by accident year and include policies written on an occurrence and claims- made basis.We note that for certain categories of claims (e.g., construction defect claims and environmental claims) and for reinsurance recoverable, losses may sometimes be reclassified to an earlier or later accident year as more information about the date of occurrence becomes available to us. These reclassifications are shown as development in the respective years in the tables below. Financial Lines business is primarily written on a claims-made basis, while the majority of the workers’ compensation, excess casualty, other casualty, and run-off property and casualty lines of business are written on an occurrence basis. Primarily, all short-tail lines in Property and Special Risks and Personal Insurance are written on an occurrence basis.
• Groupings: We believe our groupings have homogenous risk characteristics with similar development patterns and would generally be subject to similar trends and reflect our reportable segments. The incurred losses and loss adjustment expenses and paid losses in the following tables for the current reporting year are allocated to the line of business and accident years based on an initial allocation methodology and updated for the final allocation in the subsequent reporting year. The difference between the initial and the final allocation does not have a material impact on the loss tables.
• Reinsurance: Our reinsurance program varies by exposure type and may change from year to year. This may affect the comparability of the data presented in our tables. Note that the impact of the Adverse Development Reinsurance Agreement is shown separately. For the lines of business covered by the agreement, an allocation of the loss recoveries to the line of business by accident year is presented separately in the loss tables. The allocation is based on the underlying distribution of the losses subject to the agreement.
• Incurred but not reported liabilities (IBNR): We include development from past reported losses in IBNR.
• Data excluded from tables: Information with respect to accident years older than ten years is excluded from the development tables. Unallocated loss adjustment expenses are also excluded.
• Foreign exchange: The loss development for operations outside of the U.S. is presented for all accident years using the current exchange rate at December 31, 2017. Although this approach requires restating all prior accident year information, the changes in exchange rates do not impact incurred and paid loss development trends.
• Dispositions: We exclude dispositions from all accident years presented in the tables.
• Claim counts: We consider a reported claim to be one claim for each claimant or feature for each loss occurrence. Claims relating to losses that are 100 percent reinsured are excluded from the reported claims in the tables below. Reported claims for losses from assumed reinsurance contracts are not available and hence not included in the reported claims.
• There are limitations that should be considered on the reported claim count data in the tables below, including:

• Claim counts are presented only on a reported (not an ultimate) basis;
• The tables below include lines of business and geographies at a certain aggregated level which may indicate different frequency and severity trends and characteristics, and may not be as meaningful as the claim count information related to the individual products within those lines of business and geographies;
• Certain lines of business are more likely to be subject to occurrences involving multiple claimants and features, which can distort measures based on the reported claim counts in the table below; and
• Reported claim counts are not adjusted for ceded reinsurance, which may distort the measure of frequency or severity.

Supplemental Information:The information about incurred and paid loss development for all periods preceding year ended December 31, 2017 and the related historical claims payout percentage disclosure is unaudited and is presented as supplementary information.

The following tables present undiscounted, incurred and paid losses and allocated loss adjustment expenses by accident year, on a net basis after reinsurance, with a separate presentation of the Adverse Development Reinsurance Agreement excluding the related amortization of the deferred gain:

U.S. Workers' Compensation

During 2017, we recognized $31 million of favorable prior year development.

During 2016, we recognized $1.9 billion of unfavorable prior year development due to increased tail and loss development factors.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (dollars in millions)																							December 31, 2017
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		2017 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	4,114	$	4,184	$	4,422	$	4,425	$	4,471	$	4,398	$	4,385	$	4,398	$	4,547	$	4,536	$	(11)	$	448	198,852	$	(416)	$	4,120	$	32
2009				3,466		3,633		3,608		3,666		3,639		3,616		3,606		3,708		3,714		6		495	147,357		(416)		3,298		79
2010						2,706		3,049		3,125		3,148		3,211		3,214		3,286		3,267		(19)		451	133,191		(449)		2,818		2
2011								2,901		2,953		3,091		3,158		3,113		3,152		3,156		4		481	124,657		(479)		2,677		2
2012										2,382		2,194		2,286		2,260		2,334		2,308		(26)		503	70,625		(494)		1,814		9
2013												1,932		1,880		1,950		2,060		2,032		(28)		548	46,483		(538)		1,494		10
2014														1,729		1,764		1,866		1,862		(4)		664	39,408		(552)		1,310		112
2015																1,708		1,864		1,866		2		849	35,059		(587)		1,279		262
2016																		1,299		1,346		47		773	28,880		-		1,346		773
2017																				789				577	22,523		-		789		577
Total																			$	24,876	$	(29)				$	(3,931)	$	20,945
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(16,580)		-					-		(16,580)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance																				3,867		4					(1,616)		2,251
Unallocated loss adjustment expense prior year development																						(6)
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	12,163	$	(31)				$	(5,547)	$	6,616

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (dollars in millions)
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	785	$	1,678	$	2,252	$	2,655	$	3,044	$	3,272	$	3,476	$	3,609	$	3,707	$	3,789	$	-
2009				630		1,328		1,756		2,120		2,390		2,621		2,780		2,887		2,968		-
2010						550		1,093		1,537		1,855		2,126		2,288		2,426		2,532		-
2011								519		1,129		1,561		1,884		2,129		2,285		2,388		-
2012										415		804		1,089		1,272		1,440		1,563		-
2013												282		619		879		1,067		1,214		-
2014														231		558		786		930		-
2015																234		524		725		-
2016																		147		378		-
2017																				93		-
Total																			$	16,580	$	-

Reserving Process and Methodology

U.S. Workers’ Compensation is an extremely long-tail line of business, with loss emergence extending for decades. We generally use a combination of loss development, frequency/severity and expected loss ratio methods for workers’ compensation.

Many of our primary casualty policies contain risk-sharing features, including high deductibles, self-insured retentions or retrospective rating features, in addition to a traditional insurance component. These risk-sharing programs generally are large and complex, comprising multiple products, years and structures, and are subject to amendment over time. We group guaranteed cost and excess of deductible business separately and then further by state and industry subset to the extent that meaningful differences are determined to exist. We also separately analyze certain subsets of the portfolio that have unique characteristics (e.g., U.S. government sub-contractor accounts and construction wrap-up business). For excess of deductible business, we also segment by size of deductible and whether the claim is handled by AIG or an outside third-party administrator (TPA). The proportion of large deductible business has increased over time, which has slowed the reporting pattern of claims.

For guaranteed cost business, expected loss ratio methods generally are given significant weight only in the most recent accident year. Workers’ compensation claims are generally characterized by high frequency, low severity, and relatively consistent loss development from one accident year to the next. We historically have been a leading writer of workers’ compensation, and thus have sufficient volume of claims experience to use development methods. We generally segregate California (CA) and New York (NY) businesses from the other states to reflect their different development patterns and changing percentage of the mix by state. The claims development tables above are impacted by two other significant initiatives, which offset each other. In recent years, we instituted claims strategy changes and loss mitigation efforts to accelerate settlements, which we believe results in an overall reduction in claim costs. This strategy resulted in an increase in paid losses along the latest diagonals relative to prior years. In addition, we have been reducing premium volume in recent years and shifting a greater proportion of business to insured risk retention structures such as high deductible policies. These mix and volume changes slowed paid and incurred development since excess of deductible claims will typically take longer to emerge and settle.

Expected loss ratio methods for business written in excess of a deductible may be given significant weight in the most recent five accident years. In the 2016 analysis, we increased our tail factor estimates for states other than NY and CA for guaranteed cost business in recognition of longer medical development patterns that we have been seeing in recent years. We reflected increases in legal costs we have seen across the portfolio, particularly in California.

Additionally, over the years we have written a number of very large accounts which include workers’ compensation coverage. These accounts are generally individually priced by our actuaries, and to the extent appropriate, the indicated losses based on the pricing analysis may be used to record the initial estimated loss reserves for these accounts.

Prior Year Development

During 2017, we recognized $31 million of favorable prior year development in U.S. workers’ compensation business, particularly guaranteed cost business in the states of California and New York. Actual loss emergence during the year, particularly for guaranteed cost business in these two states, was significantly less than expected on a reported loss basis.We did recognize some offsetting unfavorable development in our Defense Based Act (DBA) business that covers government contractors in U.S. and non-U.S. military installations,as well as froma Pennsylvania Supreme Court decision that overturned a ruling that provided limitations on payments for certain permanent injuries (the Protz decision).

During 2016, we recognized $1.9 billion of unfavorable prior year development in primary workers’ compensation coverages primarily driven by the risk-sharing programs where we provide coverage in excess of large deductibles. For this excess of large deductible business, in 2016, we observed actual loss emergence and development at significantly greater levels than expected based on our previous experience in particular from losses in excess of $1 million. Since these policies respond to larger claims, the loss reporting pattern is much longer than observed in guaranteed cost workers’ compensation and it takes several years to discern credible changes in the pattern. Furthermore, implementation of claims settlement and loss mitigation strategies over the past several years has made the recent evaluation of data more challenging as historical development patterns may not yet fully reflect these claim and mitigation activities. During 2016, we refined our actuarial methodology by combining data across previously segregated underwriting portfolios to improve our ability to analyze the loss development trends and patterns that had been altered by the mix, claims handling and loss mitigation changes we have made during the last five years. We also developed further segmentations by deductible size and other key parameters, such as claims handled by TPA staff and not our claims department. As a result, we determined that the loss emergence patterns had changed and lengthened significantly from our prior expectation and therefore, we increased our loss development factors.

In addition, for workers’ compensation policies with no deductibles (guaranteed cost), we increased our tail factors for the all other states grouping to reflect the latest unfavorable experience in more mature accident years. This change increased the ultimate losses by approximately $440 million in 2016. We also reflected the increasing cost trends for legal and cost containment services, especially in California, as recent trends in this sector have been unfavorable.

Furthermore, in 2016, the Florida Supreme Court issued two separate rulings that have increased the potential liability for workers’ compensation claims in that state by undoing certain aspects of regulations in place since 2003. The Castellanos ruling eliminated statutory caps on claimant attorney fees in certain cases, and the Westphal ruling eliminated the 104-week limitation on temporary total disability benefits. Also in the second quarter, the Florida Court of Appeals issued the Miles decision, declaring unconstitutional certain restrictions on claimant-paid attorney fees. In in the second quarter 2016, we increased our workers’ compensation reserves by $100 million to reflect our estimate of the costs of these rulings on prior years’ claims.

During 2015, we increased our reserves by $234 million, primarily for accident years 2012 and prior in the U.S. Workers’ Compensation line, to reflect estimated increased losses and reduced expectations of future recoveries from our insureds through risk-sharing features. We also recognized $100 million of unfavorable prior year development in U.S. Workers’ Compensation coverages sold to government contractors in U.S. and non-U.S. military installations as a result of unfavorable loss emergence from several large accounts in the recent accident years. In addition, we reacted to the unfavorable emergence by increasing our expected loss ratios in recent accident years. For the remainder of the primary workers’ compensation portfolio, our 2015 analysis was based on the refined segmentation from 2014, and indicated that prior year loss reserve development was flat after taking into account the initiatives that our claim function had undertaken to manage high risk claims.

U.S. Excess Casualty

During 2017, we recognized $254million of unfavorable prior year development in Excess Casualty driven by higher than expected loss emergence.

During 2016, we recognized $1.1 billion of unfavorableprior year development in Excess Casualtydriven by continued higher than expected loss emergence.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (dollars in millions)																							December 31, 2017
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		2017 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	1,948	$	1,968	$	2,146	$	1,933	$	1,819	$	1,875	$	1,714	$	1,662	$	1,635	$	1,658	$	23	$	188	4,662	$	(176)	$	1,482	$	12
2009				1,831		1,897		1,797		1,638		1,457		1,321		1,407		1,518		1,522		4		210	3,789		(169)		1,353		41
2010						1,863		2,076		2,076		1,771		1,640		1,723		1,719		1,706		(13)		359	3,588		(260)		1,446		99
2011								1,766		1,807		1,581		1,416		1,521		1,606		1,623		17		350	3,520		(256)		1,367		94
2012										1,588		1,382		1,226		1,477		1,530		1,481		(49)		371	3,398		(323)		1,158		48
2013												1,073		973		1,113		1,258		1,178		(80)		441	2,722		(309)		869		132
2014														849		968		1,157		1,135		(22)		583	2,088		(355)		780		228
2015																892		1,334		1,320		(14)		602	1,770		(425)		895		177
2016																		790		1,029		239		870	1,061		-		1,029		870
2017																				758				725	376		-		758		725
Total																			$	13,410	$	105				$	(2,273)	$	11,137
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(7,120)		-					-		(7,120)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance																				1,649		141					(864)		785
Unallocated loss adjustment expense prior year development																						8
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	7,939	$	254				$	(3,137)	$	4,802

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (dollars in millions)
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	11	$	97	$	439	$	667	$	842	$	954	$	1,061	$	1,172	$	1,226	$	1,364	$	-
2009				8		69		249		449		624		788		965		1,174		1,212		-
2010						10		197		475		654		795		946		1,052		1,217		-
2011								5		63		225		386		716		921		1,069		-
2012										3		106		288		495		649		887		-
2013												15		104		204		382		546		-
2014														3		68		202		397		-
2015																9		192		361		-
2016																		14		66		-
2017																				1		-
Total																			$	7,120	$	-

Reserving Process and Methodology

U.S. Excess Casualty policies tend to attach at a high layer above underlying policies, which causes the loss development pattern to be lagged significantly. Many of the claims notified to the excess layers are closed without payment because the claims never reach our layer as a result of high deductibles and other underlying coverages, while the claims that reach our layer and close with payment can be large and highly variable in terms of reported timing and amount. For a portion of this business, the underlying primary policies are issued by other insurance companies, which can limit our access to relevant information to help inform our judgments as the loss events evolve and mature.

We generally use a combination of loss development methods and expected loss ratio methods for excess casualty product lines. We segment our analysis between automobile-related claims and non-automobile claims, due to the shorter-tail nature of the automobile claims. We then further segment the non-automobile claims for certain latent exposures such as construction defects and mass torts where losses have unique emergence patterns. Mass tort claims in particular may develop over an extended period of time and impact multiple accident years when they emerge. The more standard types of claims are then separately analyzed based on attachment point bands, to recognize that the impact of the level of the attachment point can significantly impact the delay in loss reporting and development. In our analyses, losses capped at $10 million were first analyzed using traditional loss development and expected loss ratio methods and then this estimate was used to derive the expected loss estimate for losses above $10 million reflecting the expected relationships between the layers, reflecting the attachment point and limit.

Expected loss ratio methods are generally used for at least the three latest accident years, due to the relatively low credibility of the reported losses. The loss experience is generally reviewed separately by attachment point. The expected loss ratios used for recent accident years are based on the projected ultimate loss ratios for older years adjusted for rate changes and loss trend.

Prior Year Development

During 2017, we recognized $254 million of unfavorableprior year development driven in large part by emerging loss experience in accident year 2016 where frequency and severity to date has exceeded initial expectations and is coinciding with increased loss severity in the underlying primary auto and general liability segments. In addition, we experienced increased development from claims related to construction defects and construction wrap business. The majority of this experience came from accident years 2006 and prior.

During 2016, we recognized $1.1 billion of unfavorable prior year development driven by continued higher than expected loss emergence due to increased frequency and severity in recent accident years for both automobile and general liability claims. Approximately $250 million of the unfavorable development is attributable to a cohort of commercial automobile claims identified in 2015 which continued to increase in severity in 2016 beyond what was observed or reasonably expected in 2015. The most significant increases in incurred losses were for accident years 2011 and subsequent. In particular, the frequency and severity of loss events for accident years 2011 and subsequent showed a significant step change from accident years 2010 and prior. We therefore gave limited credibility to accident year 2010 and prior in selecting our expected loss ratios for 2011 and subsequent accident years due to this shift in loss patterns that is now more evident and credible after examining 2016 data. As a result of the continued adverse emergence, we have increased our loss trend assumptions for general liability and automobile and increased our expected loss ratios for the most recent four accident years.

During 2015, U.S. Excess Casualty experienced $1.4 billion of unfavorable prior year development largely driven by worse than expected loss emergence reported in 2015. This increase was largely driven by adverse emergence in both general liability and umbrella auto liability, reflecting worsening trends in the number and nature of high severity losses. Approximately $411 million of the unfavorable development is related to automobile liability. Based on the adverse emergence we updated our assumptions about loss severity, loss development patterns and expected loss ratios for the most recent accident years. We have seen an increasing trend in the frequency of high severity claims, especially in the umbrella automobile liability portfolio. We also observed deterioration in certain class action claims that have complex coverage uncertainties and high limits characterized by increases in new claims and/or demands reported in 2015 and progress towards potential settlements, which have further informed our actuarial projections of ultimate losses for these types of claims. These types of claim classes have the longest emergence period within the excess casualty class and can impact multiple accident years, and are therefore inherently more volatile. In addition, we also increased losses associated with bad-faith claims by approximately $120 million reflecting an increase in recent settlements.

U.S. Other Casualty

U.S Other Casualty includes general liability, commercial auto, medical malpractice, and various other casualty lines of business.

In 2017, we recognized $216 million of unfavorable prior year development in Other Casualty primarily as a result of increased loss severity in recent accident years.

In 2016, we recognized $1.6 billion of unfavorable prior year development in Other Casualty as a result of increased frequency and severity in all three product lines.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (dollars in millions)																							December 31, 2017
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		2017 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	2,957	$	2,773	$	2,837	$	2,901	$	2,981	$	2,983	$	3,087	$	3,154	$	3,193	$	3,175	$	(18)	$	204	117,484	$	(104)	$	3,071	$	100
2009				2,416		2,517		2,586		2,582		2,697		2,818		2,880		2,863		2,855		(8)		144	90,101		(143)		2,712		1
2010						2,132		2,109		2,243		2,192		2,341		2,384		2,503		2,494		(9)		325	96,061		(133)		2,361		192
2011								2,052		2,222		2,321		2,458		2,601		2,639		2,596		(43)		256	75,189		(187)		2,409		69
2012										2,012		2,162		2,218		2,229		2,371		2,430		59		382	41,924		(210)		2,220		172
2013												1,662		1,739		1,918		2,152		2,183		31		450	36,699		(225)		1,958		225
2014														1,756		1,729		1,973		2,017		44		603	34,745		(331)		1,686		272
2015																1,340		1,778		1,847		69		752	31,409		(456)		1,391		296
2016																		1,348		1,352		4		853	23,868		-		1,352		853
2017																				616				487	15,172		-		616		487
Total																			$	21,565	$	129				$	(1,789)	$	19,776
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(15,521)		-					-		(15,521)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance																				1,406		10					(512)		894
Unallocated loss adjustment expense prior year development																						77
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	7,450	$	216				$	(2,301)	$	5,149

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (dollars in millions)
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	277	$	791	$	1,251	$	1,771	$	2,119	$	2,396	$	2,586	$	2,731	$	2,835	$	2,895	$	-
2009				393		842		1,253		1,650		2,002		2,241		2,386		2,607		2,664		-
2010						295		661		985		1,358		1,640		1,824		1,972		2,087		-
2011								235		726		1,109		1,488		1,822		2,048		2,220		-
2012										413		743		1,048		1,395		1,690		1,882		-
2013												169		592		956		1,243		1,483		-
2014														210		621		871		1,157		-
2015																111		321		783		-
2016																		77		299		-
2017																				51		-
Total																			$	15,521	$	-

Reserving Process and Methodology

U.S. Other Casualty includes general liability, automobile liability, environmental, medical malpractice, and other casualty lines of business. These lines of business are all long-tail in nature and while somewhat diverse in terms of exposures, these lines are often subject to similar trends. These lines are often significantly impacted by the underwriting cycle and external judicial trends. Many of our policies contain risk-sharing features, including high deductibles, self-insured retentions or retrospective rating features, in addition to a traditional insurance component. These risk-sharing programs generally are large and complex, comprising multiple products, years and structures, and are subject to amendment over time.

We generally use a combination of loss development methods, frequency/severity and expected loss ratio methods for primary general liability or products liability product lines. We also supplement the standard actuarial techniques by using evaluations of the ultimate losses on unusual claims or claim accumulations by external specialists on those subsets of claims. The segmentation of the data reflects state differences, industry groups, deductible/non-deductible programs and type of claim.

We segment our analysis by line of business and key coverage structures (claims-made vs. occurrence, large deductible policies, retrospective-rated policies, captives, etc.). Additionally, certain subsets, such as construction defect for general liability, auto liability policies for trucking business, hospital policies for medical malpractice and underground storage tanks for environmental are generally reviewed separately from business in other subsets. We continually refine our loss reserving techniques for the domestic primary casualty product lines and adopt further segmentations based on our analysis of the differing emerging loss patterns for certain subsets of insureds. Due to the long-tail nature of general liability business, and the many subsets that are reviewed individually, there is less credibility given to the reported losses and increased reliance on expected loss ratio methods for recent accident years.

For certain product lines with sufficient loss volume, loss development methods may be given significant weight for all but the most recent one or two accident years. For smaller or more volatile subsets of business and excess of a large deductible business, loss development methods may be given limited weight for the five or more recent accident years. Expected loss ratio methods are used for the more recent accident years for these subsets. The loss experience for primary general liability business is generally reviewed at a level that is believed to provide the most appropriate data for reserve analysis. For other subsets, such as environmental, we utilize a combination of claim analysts’ loss projections and actuarial methods to estimate ultimate losses.

Expected loss ratio methods are generally given significant weight only in the most recent accident year, except for excess of large deductible business, in which expected loss ratio methods may receive weight for several of the most recent accident years. In recent years, the impact of the increase in the frequency of severe claims was projected in the accident years where it was most prevalent. The resulting increase in ultimate loss projections and loss ratios for those years impacted subsequent years through loss development factors and prior expected loss ratio assumptions.

Prior Year Development

Primary General Liability

In 2017, we increased our ultimate loss estimates for prior accident years by $330 million. This was driven by reported loss development being greater than expected as a result of increased loss severity. We revised our loss trend assumptions which also contributed to increased estimates for the more recent accident years. For older accident years, we experienced increased loss development from construction defect claims and construction wrap business.

In 2016, we increased our ultimate loss estimates for prior accident years by $754 million. We increased our assumptions about loss development and expected loss ratios based on the adverse actual versus expected loss emergence driven by increases in severity, especially in the risk-sharing excess of deductible programs. In addition, our segmentation separately evaluated key structural drivers recently identified in the data. As a result, we noted the unfavorable development that was driven by construction defect claims which continue to increase in severity and which exhibit continued higher development at later ages than previously observed. We also identified and separately analyzed in 2016 certain mass tort claims and increased reserves for such claims due to their much longer claim emergence and loss development patterns than previously observed.

In 2015, we increased our ultimate loss estimates for prior accident years by $172 million largely related to coverage sold to the construction sectors as we reacted to adverse loss emergence throughout the year, by changing our assumptions about loss development and expected loss ratios. For construction, the unfavorable development was driven by construction defect claims. The construction class was re-underwritten to reduce New York and U.S. residential exposures.

Primary Commercial Auto Liability

In 2017, we increased our ultimate loss estimates for prior accident years by $42 million. A majority of this development related to accident year 2016 where reported loss experience has been emerging greater than expected, driven by an increase in the frequency of large claims. We have experienced severity trends in recent accident years that have been at much higher levels than what has been reflected in the historic data, although we did see some signs of abatement during the second half of the year.

In 2016, we continued to observe increases in both the frequency and severity of claims occurring in accident years since the recent U.S. economic downturn. These claims have significantly outpaced both our accident year loss ratio assumptions made in 2015 and the pricing rate increases implemented during the same period. As a result, we recognized $352 million of unfavorable development during 2016 as we increased the expected loss ratios for recent accident years to reflect continued market deterioration in the trends observed in 2016 and the higher reported losses in very recent accident years.

For primary commercial auto liability in 2015, we observed increases in both the frequency and severity of claims occurring since the recovery from the recent U.S. economic downturn, which have significantly outpaced the pricing rate increases implemented during the same period. As a result, we recognized $105 million of unfavorable development during 2015 as we increased the expected loss ratios for recent accident years to reflect the deteriorating trends.

In 2015, we also reassessed the reasonableness of our primary general liability and commercial auto liability for future claim handling expenses related to existing loss reserves and updated our estimates to reflect the costs from recent investments in claims systems, processes and people with the objective of improving our ability to better manage total loss costs. We increased our reserve estimates by $214 million based on refined analyses, $100 million of which was attributable to U.S. general liability. The balance was distributed among other product lines.

Medical Malpractice

During 2017, we recognized favorable loss development of $23 million. Reported loss development was less than expected in aggregate; although we did continue to see higher loss severity in the more recent accident years. Premium volume has declined significantly over the last several years and certain segments such as physicians and surgeons, medical products, and nursing homes business (in certain jurisdictions) have been exited entirely.

During 2016, we recognized $428 million of unfavorable development in U.S. Other Casualty medical malpractice comprising primary and excess hospitals and nursing homes coverages. This was in reaction to a continued increase in the frequency of unusually large claims in these classes that drove the adverse actual versus expected loss emergence observed in 2016. Based on the observed adverse emergence and its sustained levels over the last several years, we increased our expected incurred losses and loss ratios for accident years 2011 and subsequent to reflect the distinct step change in the loss ratios from accident years 2010 and prior.

During 2015, we recognized $202 million of unfavorable development in U.S. Other Casualty hospitals coverages driven by deteriorating loss experience in accident years 2008 and subsequent characterized by large claims in various segments including hospitals, nursing homes, and pharmaceutical and medical products liability. Based on the review of these large claims, we increased our expected loss ratios for recent accident years and classified physicians and surgeons and pharmaceutical and medical products classes into runoff.

Other Lines

During 2017, we recognized favorable loss development of $133 million. The key drivers of this activity were favorable development on loss-sensitive casualty business, environmental impairment liability business, extra-contractual obligations, and business internally reinsured from other business units.

During 2016, we recognized adverse loss development of $50 million. The key drivers of this activity were adverse development on liabilities related to commuted and insolvent reinsurers, environmental impairment liability business, and extra-contractual obligations, partially offset by favorable development on loss-sensitive casualty business, residual market business, and reserves for unallocated loss adjustment expenses.

During 2015, we recognized adverse loss development of $514 million. This was primarily related to an increase in estimated liabilities related to our loss-sensitive casualty business.

U.S. Financial Lines

During 2017, we recognized $345 million of unfavorable prior year development in U.S. Financial Lines primarily due to adverse experience in the Directors and Officers (D&O) subset of business.

During 2016, we recognized $306 million of unfavorable prior year development in U.S. Financial Lines primarily due to higher than expected settlements on large claims from the financial crisis.

The mix of business has been changing in recent years as we write more cyber and mergers and acquisitions business, which generally report claims faster.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (dollars in millions)																							December 31, 2017
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		2017 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	1,871	$	2,045	$	2,017	$	1,847	$	1,961	$	1,897	$	1,933	$	2,066	$	2,096	$	2,106	$	10	$	36	21,719	$	(21)	$	2,085	$	15
2009				1,693		1,780		1,845		1,904		2,097		2,189		2,183		2,273		2,310		37		60	22,613		(26)		2,284		34
2010						1,552		1,509		1,406		1,366		1,370		1,472		1,514		1,541		27		70	20,159		(31)		1,510		39
2011								1,816		1,734		1,902		1,902		1,935		1,965		1,997		32		50	20,048		(50)		1,947		-
2012										1,572		1,739		1,777		1,892		1,986		1,987		1		146	20,090		(83)		1,904		63
2013												1,767		1,691		1,643		1,597		1,541		(56)		248	18,996		(126)		1,415		122
2014														1,767		1,736		1,849		1,898		49		417	17,249		(198)		1,700		219
2015																1,705		1,744		1,719		(25)		665	15,698		(313)		1,406		352
2016																		1,593		1,841		248		1,036	15,386		-		1,841		1,036
2017																				1,560				1,369	13,428		-		1,560		1,369
Total																			$	18,500	$	323				$	(848)	$	17,652
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(12,615)		-					-		(12,615)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance																				88		(44)					(21)		67
Unallocated loss adjustment expense prior year development																						66
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	5,973	$	345				$	(869)	$	5,104

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (dollars in millions)
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	32	$	420	$	888	$	1,183	$	1,385	$	1,590	$	1,712	$	1,897	$	1,990	$	2,016	$	-
2009				129		499		887		1,273		1,614		1,838		1,964		2,056		2,092		-
2010						31		285		566		800		1,017		1,180		1,280		1,361		-
2011								165		494		886		1,210		1,528		1,732		1,862		-
2012										76		406		815		1,252		1,497		1,625		-
2013												43		333		686		945		1,142		-
2014														66		371		853		1,159		-
2015																66		393		792		-
2016																		76		500		-
2017																				66		-
Total																			$	12,615	$	-

Reserving Process and Methodology

U.S. Financial Lines business includes D&O, Errors and Omissions (E&O), Employment Practices Liability Insurance (EPLI) and various professional liability subsets of business, as well as the fidelity book of business. This includes cyber coverage and mergers and acquisitions coverage, which have been a growing and evolving portion of this portfolio. These product lines are predominantly claims-made in nature, losses are characterized by low frequency and high severity, and results are often significantly impacted by external economic conditions.

Our analysis is segmented by major coverages, such as D&O, E&O, etc. and then further segmented by major industry groups (e.g. corporate accounts, national accounts, financial institutions, private/not-for-profit, etc.). We also separately review primary business from excess business for certain product lines.

We generally use a combination of loss development methods and expected loss ratio methods for D&O, E&O, EPLI, and professional liability. These product lines generally are offered on a claims-made basis, and losses are characterized by low frequency and high severity. In general, expected loss ratio methods are given more weight in the more recent accident years, and loss development methods are given more weight in more mature accident years. The loss development factors for the different segments differ significantly in some cases, based on specific coverage characteristics and other factors such as industry group, attachment points, and limits offered. Individual claims projections for accident years ended over eighteen months prior are also used in the analysis.

Frequency/severity methods are generally not used in isolation for these product lines as the overall losses are driven by large losses more than by claim frequency. Severity trends have varied significantly from accident year to accident year and care is required in analyzing these trends by claim type. We also give weight to claim department ground-up projections of ultimate loss on a claim-by-claim basis as these may be more predictive of ultimate loss values, especially for older accident years.

We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight is given to this method in the more recent accident years. For surety exposures, we generally use the same method as for short-tail classes whereby frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves.

Expected loss ratio methods are also given weight for the more recent accident years. IBNR factor methods are used, when the nature of losses is low frequency/high severity. The IBNR factors, when applied to earned premium, generate the ultimate expected losses (or other exposure measure) yet to be reported. The factors are determined based on prior accident quarters’ loss costs adjusted to reflect current cost levels and the historical emergence of those loss costs. The factors are continually reevaluated to reflect emerging claim experience, rate changes or other factors that could affect the adequacy of the IBNR factor being employed.

Prior Year Development

During 2017, we recognized $345 million of unfavorable prior year development particularly in accident year 2016. The largest share of the unfavorable development came from D&O for privately owned and not-for -profit insuredsand resulted largely from increases in bankruptcy-related claims and fiduciary liability claims for large educational institutions. Other segments of the portfolio contributed largely offsetting favorable and unfavorable development; notably, development was unfavorable for excess D&O and employment practices liability while development was favorable for fidelity and D&O for corporate and national accounts.

During 2016, we recognized $306 million of unfavorable prior year development as we reacted to the unfavorable actual versus expected in 2016 driven by higher than expected settlements on several large claims from the financial crisis for accident years 2006 to 2010, as well as unfavorable emergence of errors and omissions losses relative to historical expectations. In addition to the unfavorable emergence, we also updated our loss development factor assumptions, expected loss ratio assumptions and the weights given to the various methods in recent accident years.

During 2015, we recognized $502 million of unfavorable prior year development driven largely by the unfavorable loss emergence that we saw in 2015, especially in D&O and professional liability. In particular, we have observed greater than expected loss costs for several claims from accident years 2006 through 2010, driven by unfavorable settlements and deterioration in known claims. We also updated our loss development factor assumptions as well as expected loss ratio assumptions.

U.S. Property and Special Risks

During 2017, we recognized $115 million of unfavorable prior year development in U.S. Property and Special Risks mainly due to unfavorable development from the commercial auto portion of the Program business unit, which offers multiline policies to small and mid-sized insureds.

During 2016, we recognized $396 million of unfavorable prior year development in U.S. Property and Special Risks. The increase was mainly due to the U.S. program product line which is a collection of programs offering package policies to small and middle market insureds.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (dollars in millions)																							December 31, 2017
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		2017 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	3,531	$	3,789	$	3,747	$	3,700	$	3,659	$	3,609	$	3,585	$	3,581	$	3,576	$	3,575	$	(1)	$	20	56,526	$	(14)	$	3,561	$	6
2009				1,919		1,704		1,689		1,700		1,662		1,665		1,656		1,664		1,663		(1)		18	42,897		(13)		1,650		5
2010						2,275		2,042		2,009		2,049		2,061		2,038		2,043		2,058		15		21	42,276		(18)		2,040		3
2011								3,045		2,917		2,872		2,878		2,867		2,910		2,919		9		43	43,849		(19)		2,900		24
2012										3,470		3,617		3,585		3,576		3,697		3,691		(6)		62	42,278		(25)		3,666		37
2013												1,975		1,972		1,859		1,926		1,949		23		74	41,937		(38)		1,911		36
2014														2,355		2,143		2,220		2,213		(7)		140	50,160		(61)		2,152		79
2015																2,398		2,312		2,299		(13)		203	50,624		(98)		2,201		105
2016																		2,516		2,580		64		402	45,583		-		2,580		402
2017																				4,085				1,331	29,709		-		4,085		1,331
Total																			$	27,032	$	83				$	(286)		26,746
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(21,589)		-					-		(21,589)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance																				318		12					(65)		253
Unallocated loss adjustment expense prior year development																						20
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	5,761	$	115				$	(351)		5,410

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (dollars in millions)
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	1,323	$	2,679	$	3,150	$	3,342	$	3,457	$	3,487	$	3,498	$	3,515	$	3,530	$	3,540	$	-
2009				495		1,044		1,288		1,443		1,528		1,580		1,597		1,618		1,633		-
2010						654		1,391		1,657		1,799		1,880		1,940		1,978		2,001		-
2011								880		1,988		2,417		2,593		2,734		2,812		2,840		-
2012										734		2,410		2,978		3,273		3,456		3,565		-
2013												586		1,275		1,469		1,620		1,732		-
2014														745		1,452		1,713		1,869		-
2015																820		1,501		1,766		-
2016																		799		1,689		-
2017																				954		-
Total																			$	21,589	$	-

Reserving Process and Methodology

U.S. Property products include commercial, industrial and energy-related property insurance products and services that cover exposures to manmade and natural disasters, including business interruption. U.S. Special Risk products include aerospace, environmental, political risk, trade credit, surety and marine insurance, and program business for various small and medium sized enterprises insurance lines. The program segments include both property and casualty exposures.

We primarily segment our analysis by line of business. Additionally, we separately review various subsets, including hull, cargo, and liability for marine business, aviation and satellite for aerospace business, and various other specific programs and product lines.

Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves for short-tail classes such as U.S. Property.

IBNR factor methods are used when the nature of losses is low frequency/high severity. The IBNR factors, when applied to earned premium, generate the ultimate expected losses (or other exposure measure) yet to be reported. The factors are determined based on prior accident quarters’ loss costs adjusted to reflect current cost levels and the historical emergence of those loss costs. The factors are continually reevaluated to reflect emerging claim experience, rate changes or other factors that could affect the adequacy of the IBNR factor being employed.

We generally use a combination of loss development methods and expected loss ratio methods for aviation exposures. Aviation claims are not very long-tail in nature; however, they are driven by claim severity. Thus a combination of both development and expected loss ratio methods is used for all but the latest accident year to determine the loss reserves. Frequency/severity methods are not employed due to the high severity nature of the claims and different mix of claims from year to year.

We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight is given to this method in the more recent accident years. The claims staff also provides specific estimates to assist in the setting of reserves for natural catastrophe losses.

For program business, we use methods which vary by line of business. For property classes, we use methods similar to those noted above. For liability classes, we use methods similar to those described in the casualty sections detailed above.

Expected loss ratio methods are used to determine the loss reserves for the latest accident year. We also use ground-up claim projections provided by our claims staff to assist in developing the appropriate reserve.

Prior Year Development

During 2017, we recognized $115 million of unfavorable prior year development primarily driven by commercial auto business in the program business unit. A significant portion of this development came from accident year 2016 with much of it related to programs that have been terminated over the past year. We also experienced some individual severe loss experience, also mostly related to accident year 2016 in other lines of business including aviation, surety, and marine; however, this was largely offset by favorable development in commercial property.

During 2016, we recognized $396 million of unfavorable prior year developmentdriven by our U.S. program business where we recognized $350 million of unfavorable prior year development due to higher than expected claim emergence in certain automobile, habitational and professional liabilityprograms that resulted in our increasing expected loss ratios and loss development factors for several program subsets.

During 2015, we recognized $132 million of favorable prior year development from a number of large individual property claims.

U.S. Personal Insurance

During 2017, we recognized $16 million of unfavorable prior year development in U.S. Personal Insurance mainly due to homeowners business in accident year 2016. This was partially offset by favorable development in accident and health business.

During 2016, we recognized $32 million of favorable prior year development in U.S. Personal Insurance.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance
	Years Ended December 31, (dollars in millions)																							December 31, 2017
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017 Prior Year Development Excluding the Impact of Adverse Development Reinsurance Agreement		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims		Incurred Impact of Adverse Development Reinsurance Agreement		2017 (Net of Impact of Adverse Development Reinsurance Agreement)		Total of IBNR Liabilities Net of Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	1,630	$	1,638	$	1,640	$	1,654	$	1,654	$	1,654	$	1,663	$	1,666	$	1,664	$	1,668	$	4	$	1	292,830	$	(1)	$	1,667	$	-
2009				1,763		1,697		1,649		1,663		1,664		1,664		1,668		1,667		1,671		4		4	375,959		-		1,671		4
2010						1,843		1,809		1,819		1,819		1,820		1,819		1,817		1,817		-		2	422,527		(1)		1,816		1
2011								1,886		1,908		1,896		1,891		1,890		1,886		1,881		(5)		1	412,670		(1)		1,880		-
2012										2,208		2,128		2,109		2,083		2,077		2,094		17		4	403,542		(3)		2,091		1
2013												1,887		1,816		1,803		1,782		1,780		(2)		7	334,474		(6)		1,774		1
2014														1,552		1,562		1,572		1,572		-		19	273,481		(8)		1,564		11
2015																1,511		1,498		1,494		(4)		23	258,241		(19)		1,475		4
2016																		1,536		1,533		(3)		73	240,892		-		1,533		73
2017																				2,028				571	185,198		-		2,028		571
Total																			$	17,538	$	11				$	(39)		17,499
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(16,053)		-					-		(16,053)
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance																				(65)		5					(1)		(66)
Unallocated loss adjustment expense prior year development																						-
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	1,420	$	16				$	(40)		1,380

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
	Years Ended December 31, (dollars in millions)
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		Paid Impact of Adverse Development Reinsurance Agreement
	Unaudited
2008	$	1,151	$	1,493	$	1,569	$	1,609	$	1,634	$	1,644	$	1,656	$	1,660	$	1,663	$	1,665	$	-
2009				1,129		1,563		1,567		1,618		1,639		1,650		1,658		1,663		1,664		-
2010						1,205		1,669		1,736		1,772		1,794		1,803		1,808		1,810		-
2011								1,204		1,752		1,814		1,840		1,860		1,869		1,873		-
2012										1,238		1,936		1,996		2,035		2,065		2,079		-
2013												1,109		1,634		1,705		1,744		1,759		-
2014														959		1,380		1,463		1,507		-
2015																931		1,320		1,411		-
2016																		857		1,344		-
2017																				941		-
Total																			$	16,053	$	-

Reserving Process and Methodology

U.S. Personal Insurance consists of accident and health and personal lines. Accident and health products include voluntary and sponsor-paid personal accident and supplemental health products for individuals, employees, associations and other organizations as well as a broad range of travel insurance products and services for leisure and business travelers. Personal lines include automobile and homeowners’ insurance, extended warranty, and consumer specialty products, such as identity theft and credit card protection. Personal lines also provides insurance for high net worth individuals offered through AIG Private Client Group, including auto, homeowners, umbrella, yacht, fine art and collections insurance. Personal lines are generally short-tail in nature.

We primarily segment our analysis by line of business and may separately review various sub-segments, such as specific accident and health products and property damage versus liability for personal lines products.

Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves for short-tail product lines such as personal property.

Frequency/severity and loss development methods are utilized for domestic personal auto product lines.

For these classes of business, reliance is placed on frequency/severity methods as claim counts emerge quickly for personal auto. Frequency/severity methods allow for more immediate analysis of resulting loss trends and comparisons to industry and other diagnostic metrics.

In general, development for U.S. Personal Insurance classes has been very stable, with only modest changes in the initial selected loss ratios for this business.

Prior Year Development

During 2017, we recognized $16 million of unfavorable prior year development in U.S. Personal Insurance mainly due to homeowners business in accident year 2016, particularly from catastrophe activity. This was partially offset by favorable development in accident and health business.

During 2016 and 2015, we recognized $32 million, and $69 million of favorable development, respectively, mainly driven by accident and health business.

Europe Casualty and Financial Lines

During 2017, we recognized $507 million of unfavorable prior year development in Europe Casualty and Financial Lines driven by continued higher than expected loss emergence.

During 2016, we recognized $320 million of unfavorableprior year development, largely from accident years 2014 and 2015.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
	Years Ended December 31, (dollars in millions)																							December 31, 2017
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017 Prior Year Development		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims
	Unaudited
2008	$	1,511	$	1,615	$	1,632	$	1,580	$	1,595	$	1,599	$	1,649	$	1,605	$	1,604	$	1,604	$	-	$	24	236,384
2009				1,746		1,844		1,858		1,856		1,885		1,906		1,912		1,996		2,030		34		103	236,270
2010						1,484		1,436		1,432		1,457		1,380		1,420		1,377		1,445		68		77	274,310
2011								1,414		1,352		1,426		1,465		1,552		1,554		1,597		43		83	264,629
2012										1,224		1,193		1,150		1,222		1,263		1,232		(31)		103	217,887
2013												1,221		1,277		1,257		1,258		1,305		47		194	185,435
2014														1,280		1,267		1,302		1,303		1		340	175,630
2015																1,337		1,515		1,538		23		588	188,348
2016																		1,563		1,716		153		724	221,122
2017																				1,587				1,214	204,712
Total																			$	15,357	$	338
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(8,965)		-
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance																				594		169
Unallocated loss adjustment expense prior year development																						-
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	6,986	$	507
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
	Years Ended December 31, (dollars in millions)
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	Unaudited
2008	$	130	$	477	$	726	$	961	$	1,118	$	1,245	$	1,323	$	1,375	$	1,455	$	1,471
2009				139		418		708		970		1,139		1,274		1,442		1,581		1,681
2010						147		420		635		808		947		1,042		1,109		1,162
2011								140		376		564		811		963		1,108		1,224
2012										121		334		484		677		809		897
2013												105		375		543		736		877
2014														86		299		494		628
2015																80		286		486
2016																		140		426
2017																				113
Total																			$	8,965
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Reserving Process and Methodology

Europe is our largest non-U.S. region for Liability and Financial Lines. Europe Casualty and Financial Lines is composed of third-party coverages including general liability, auto liability, D&O, professional liability and various other lines of business throughout both the UK and Continental Europe. These lines of business are all long-tail in nature and while somewhat diverse in terms of exposures, these lines are often subject to similar trends. These lines are impacted by the underwriting cycle and external judicial trends. The largest share of business is in the UK, but significant business is also written in other European countries such as Germany, France, and Italy.

We primarily segment our analysis by country and line of business. Additionally, we separately review various product lines, including excess versus primary casualty, commercial versus financial institutions management liability, and other specific programs and subsets of business. We maintain a database of detailed historical premium and loss transactions in original currency for business written outside of the U.S. which allows our actuaries to determine loss reserves without foreign exchange distorting development.

We generally use a combination of loss development methods and expected loss ratio methods. For countries and lines of business with sufficient loss volume, loss development methods may be given significant weight for all but the most recent accident years. For smaller countries and more volatile product lines, loss development methods are typically given limited weight for recent accident years. Further, we may rely on larger data subsets in determining the loss development factors and a priori loss ratio assumptions.

In general, the loss development for long-tail lines in Europe has been more stable than the development in U.S. long-tail lines, although some underlying drivers have affected the results in a similar manner (e.g. the impact of the financial crisis in accident years 2008 and 2009).

Prior Year Development

During 2017 we recognized $507 million of unfavorable prior year development in Europe casualty and Financial Lines. We observed a significant increase in large claims activity across multiple segments, notably excess casualty business and D&O and professional liability coverages for financial institutions. This experience was spread across multiple accident years but had the largest impact on accident year 2016 and accident years 2008 and prior. We increased loss development assumptions for Financial Lines business in consideration of the increased loss activity experienced in older accident years and increased expected loss ratios for more recent accident years. For Casualty lines, we increased loadings for large losses, particularly in the more recent accident years. In addition, we increased our loss reserves as a result of the decision made by the U.K. Ministry of Justice to reduce the discount rate applied to lump-sum bodily injury payouts, known as the Ogden rate.

During 2016, we recognized $320 million of unfavorable prior year development. Within Europe Financial Lines, we recognized $232 million of unfavorable development primarily from the D&O line in UK and Continental Europe as result of the unfavorable actual versus expected loss emergence in 2016 due to increased frequency and severity resulting from increasing litigation. In Europe Casualty we recognized $123 million of unfavorable development primarily from the unexpected emergence of several large excess casualty claims. The actual versus expected loss emergence for Europe Casualty and Financial Lines was more than expected.

During 2015, we recognized $142 million of unfavorable prior year development, primarily due to primary casualty and professional liability in Continental Europe and the UK. During 2015, we implemented an enhanced claims operating model in Europe which has provided our actuaries with more detailed case reserve data and analysis, enabling AIG’s actuaries to react sooner to case development than in prior years.

Europe Property and Special Risks

During 2017, we recognized $157 million of unfavorable prior year development in the Europe Property and Special Risks segment driven primarily by unexpected development on large claims, primarily from accident years 2015 and 2016.

During 2016, we recognized $11 million of unfavorable prior year development.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
	Years Ended December 31, (dollars in millions)																							December 31, 2017
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017 Prior Year Development		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims
	Unaudited
2008	$	633	$	636	$	644	$	643	$	632	$	626	$	620	$	618	$	614	$	613	$	(1)	$	-	41,602
2009				738		666		675		674		666		680		655		655		655		-		3	39,109
2010						788		747		719		703		712		703		706		707		1		-	40,389
2011								763		687		648		642		631		628		628		-		-	39,925
2012										728		682		648		630		615		627		12		(2)	34,457
2013												914		915		842		840		842		2		(1)	32,405
2014														994		1,046		1,052		1,050		(2)		1	38,719
2015																1,226		1,219		1,248		29		12	41,799
2016																		1,118		1,239		121		24	40,629
2017																				1,377				390	29,313
Total																			$	8,986	$	162
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(6,971)		-
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance																				7		(5)
Unallocated loss adjustment expense prior year development																						-
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	2,022	$	157
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
	Years Ended December 31, (dollars in millions)
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	Unaudited
2008	$	148	$	399	$	511	$	546	$	577	$	590	$	596	$	596	$	598	$	599
2009				183		429		532		585		613		620		632		634		635
2010						187		489		584		634		672		686		690		693
2011								181		444		543		581		591		599		604
2012										154		410		511		549		572		580
2013												193		535		700		751		786
2014														220		669		885		939
2015																290		778		1,005
2016																		300		894
2017																				236
Total																			$	6,971
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Reserving Process and Methodology

Europe Property products include commercial, industrial and energy-related property insurance products and services that cover exposures to manmade and natural disasters, including business interruption. Europe Special Risk products include aerospace, environmental, political risk, trade credit, surety and marine insurance, and various small and medium sized enterprises insurance lines.

We primarily segment our analysis by line of business. Additionally, we separately review various subsets, including hull, cargo, and liability for marine business, aviation and satellite for aerospace business, and various other specific programs and product lines.

Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves for short-tail classes such as Europe Property.

IBNR factor methods are used when the nature of losses is low frequency/high severity. The IBNR factors, when applied to earned premium, generate the ultimate expected losses (or other exposure measure) yet to be reported. The factors are determined based on prior accident quarters’ loss costs adjusted to reflect current cost levels and the historical emergence of those loss costs. The factors are continually reevaluated to reflect emerging claim experience, rate changes or other factors that could affect the adequacy of the IBNR factor being employed.

We generally use a combination of loss development methods and expected loss ratio methods for aviation exposures. Aviation claims are not very long-tail in nature; however, they are driven by claim severity. Thus a combination of both development and expected loss ratio methods is used for all but the latest accident year to determine the loss reserves. Frequency/severity methods are not employed due to the high severity nature of the claims and different mix of claims from year to year.

We generally use loss development methods for fidelity exposures for all but the latest accident year. We also use claim department projections of the ultimate value of each reported claim to supplement and inform the standard actuarial approaches and some weight is given to this method in the more recent accident years. The claims staff also provides specific estimates to assist in the setting of reserves for natural catastrophe losses.

Expected loss ratio methods are used to determine the loss reserves for the latest accident year. We also use ground-up claim projections provided by our claims staff to assist in developing the appropriate reserve.

Prior Year Development

During 2017, we recognized $157 million of unfavorable prior year development, primarily from accident years 2015 and 2016. This was largely driven by large individual claim development in the property, aviation, marine, and trade credit lines of business

During 2016, we recognized $11 million of unfavorable prior year development, primarily from the property segment.

During 2015, we recognized $4 million of unfavorable prior year development from a number of large individual property claims.

Europe and Japan Personal Insurance

During 2017,we recognized $58 million of favorable prior year development in Europe and Japan Personal Insurance mainly due to accident and health business.

During 2016, we recognized $82 million of favorable prior year development in Europe and Japan Personal Insurance mainly due to accident and health business.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
	Years Ended December 31, (dollars in millions)																							December 31, 2017
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017 Prior Year Development		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims
	Unaudited
2008	$	2,869	$	2,911	$	2,904	$	2,908	$	2,915	$	2,919	$	2,913	$	2,916	$	2,912	$	2,914	$	2	$	3	1,577,002
2009				2,913		2,900		2,901		2,920		2,909		2,907		2,900		2,902		2,902		-		5	1,605,992
2010						2,969		3,007		3,015		3,003		3,004		2,999		3,027		3,030		3		8	1,819,631
2011								3,274		3,324		3,293		3,295		3,284		3,288		3,287		(1)		10	1,777,001
2012										2,898		2,867		2,851		2,836		2,845		2,846		1		16	1,729,298
2013												2,747		2,736		2,705		2,706		2,702		(4)		25	1,734,759
2014														2,717		2,716		2,698		2,690		(8)		45	1,789,718
2015																2,795		2,756		2,746		(10)		92	1,762,514
2016																		2,734		2,692		(42)		194	1,762,768
2017																				2,659				549	1,502,118
Total																			$	28,468	$	(59)
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(26,161)		-
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance																				41		1
Unallocated loss adjustment expense prior year development																						-
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	2,348	$	(58)
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
	Years Ended December 31, (dollars in millions)
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	Unaudited
2008	$	1,602	$	2,421	$	2,655	$	2,773	$	2,829	$	2,865	$	2,880	$	2,887	$	2,896	$	2,899
2009				1,627		2,412		2,656		2,765		2,821		2,850		2,867		2,879		2,886
2010						1,703		2,497		2,741		2,852		2,909		2,944		2,963		2,975
2011								1,987		2,787		3,022		3,134		3,198		3,227		3,244
2012										1,614		2,363		2,591		2,698		2,754		2,785
2013												1,503		2,246		2,462		2,569		2,625
2014														1,476		2,225		2,447		2,558
2015																1,501		2,270		2,493
2016																		1,500		2,231
2017																				1,465
Total																			$	26,161
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Reserving Process and Methodology

Europe and Japan Personal Insurance lines consist of accident and health and personal lines. Accident and health products include voluntary and sponsor-paid personal accident and supplemental health products for individuals, employees, associations and other organizations as well as a broad range of travel insurance products and services for leisure and business travelers. Personal lines include automobile and homeowners’ insurance, extended warranty, and consumer specialty products, such as identity theft and credit card protection. Personal lines are generally short-tail in nature.

We primarily segment our analysis by line of business (and by country for Europe and Japan business) and may separately review various sub-segments, such as specific accident and health products and property damage versus liability for other personal lines products.

Frequency/severity methods, loss development methods, and IBNR factor methods are used alone or in combination to set reserves for short-tail product lines such as personal property.

Frequency/severity and loss development methods are utilized for domestic personal auto product lines.

For these classes of business, reliance is placed on frequency/severity methods as claim counts emerge quickly for personal auto. Frequency/severity methods allow for more immediate analysis of resulting loss trends and comparisons to industry and other diagnostic metrics.

In general, development for Europe and Japan Personal Insurance classes has been very stable, with only modest changes in the initial selected loss ratios for this business.

Prior Year Development

During 2017, 2016 and 2015, we recognized $58 million and $82 millionof favorable development, and $15 million of unfavorable development, respectively, mainly driven by the accident and health business.

U.S. Run-Off Long Tail Insurance Lines

During 2017, the U.S. Run-Off Long Tail Insurance Lines experienced favorable prior year development of $30 million driven primarily by favorable asbestos development.

During 2016, the U.S. Run-Off Long Tail Insurance Lines experienced unfavorable prior year development of $390 million driven by Legacy pre-1986 pollution losses and the Run-Off public entity casualty business.

Incurred Losses and Allocated Loss Adjustment Expenses, Undiscounted and Net of Reinsurance*
	Years Ended December 31, (dollars in millions)																							December 31, 2017
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017 Prior Year Development		Total of IBNR Liabilities Plus Expected Development on Reported Losses	Cumulative Number of Reported Claims
	Unaudited
2008	$	945	$	1,035	$	884	$	868	$	909	$	926	$	978	$	976	$	983	$	985	$	2	$	65	40,075
2009				553		532		544		579		635		602		599		580		576		(4)		75	16,237
2010						640		528		534		557		585		582		611		565		(46)		68	8,490
2011								534		542		576		641		676		685		700		15		97	7,798
2012										629		678		741		786		751		752		1		104	4,053
2013												482		533		589		570		528		(42)		84	2,510
2014														379		475		453		459		6		164	2,307
2015																439		523		550		27		174	2,285
2016																		294		285		(9)		98	1,591
2017																				197				163	607
Total																			$	5,597	$	(50)
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance from the table below																				(3,830)		-
Liabilities for losses and loss adjustment expenses and prior year development
before accident year 2008, net of reinsurance																				3,616		(46)
Unallocated loss adjustment expense prior year development																						66
Liabilities for losses and loss adjustment expenses and prior year loss
development, net of reinsurance																			$	5,383	$	(30)
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance*
	Years Ended December 31, (dollars in millions)
Accident Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	Unaudited
2008	$	133	$	370	$	497	$	572	$	657	$	726	$	787	$	832	$	846	$	866
2009				42		134		231		286		368		409		429		447		461
2010						57		149		243		321		404		435		455		464
2011								21		140		259		385		449		532		549
2012										86		194		286		414		481		498
2013												87		154		261		321		368
2014														21		96		185		233
2015																35		132		238
2016																		53		140
2017																				13
Total																			$	3,830
* The losses reported in the table are not covered by the Adverse Development Reinsurance Agreement.

Reserving Process and Methodology

U.S. Run-Off Long Tail Insurance lines include run-off lines for asbestos and environmental (1986 and prior), excess workers’ compensation, and other casualty coverages consisting of environmental impairment liability and related coverages, medical malpractice, workers’ compensation, and general liability. In some cases, the exposures in the more recent years have declined since the portfolio is in run-off.

Asbestos and Environmental (1986 and prior)

Asbestos coverage has been excluded from AIG policies commencing in 1985. Most of AIG’s asbestos claims exposures are ceded to National Indemnity Company (NICO) under a retroactive reinsurance arrangement entered into in 2011. Many of other asbestos-related exposures are very long-tailed in nature and with exposures dating back 30 years or more. We consider a number of factors and recent experience in addition to the results of both external and internal analyses, to estimate asbestos and pre-1986 environmental loss reserves. We primarily base our determination of these loss reserves on a combination of ground-up and top-down analyses of historical claims and available insurance coverages. Nonetheless, we believe that significant uncertainty remains as to our ultimate liability for asbestos and environmental claims, which is due to several factors, including:

• the long latency period between asbestos exposure and disease manifestation, and pollution events occurring undetected over many years, leading to the potential for involvement of multiple policy periods for individual claims;
• claims filed under the non-aggregate premises or operations section of general liability policies;
• the number of insureds seeking bankruptcy protection and the effect of prepackaged bankruptcies;
• diverging legal interpretations; and
• the difficulty in estimating the allocation of remediation cost among various parties with respect to environmental claims.

Loss reserves for asbestos and environmental claims cannot be estimated using conventional reserving techniques such as those that rely on historical accident year loss development factors. The methods used to determine asbestos and environmental loss estimates and to establish the resulting reserves are continually reviewed and updated by management.

Excess Workers’ Compensation

Excess workers’ compensation has an extremely long tail and is one of the most challenging lines of business from a reserving perspective, particularly when the excess coverage is provided above a self-insured retention layer. The class is highly sensitive to small changes in assumptions (for example — in the rate of medical inflation or the longevity of injured workers) which can have a significant effect on the ultimate reserve cost estimate.

Excess Workers’ Compensation business was written over qualified self-insurance by various divisions beginning in the 1980’s. In 1992, this business was consolidated into one division where it continued writing business up until 2011, when it was effectively put into runoff. In this book of business, the claims are not handled (or administered) by AIG General Insurance claims personnel, but are administered by the client’s designated TPA. However, AIG General Insurance claims personnel maintain an oversight role over these TPAs and claims.

Loss and loss adjustment expense liability estimates for excess workers’ compensation exposures are subject to additional uncertainties, due to the following:

• claim settlement time is longer than most other casualty lines, due to the lifetime benefits that can be expected to payout on certain claims;
• coverage statutes that vary by state; and
• future medical inflation costs are difficult to estimate

For this business, a combination of traditional methods (paid and incurred loss development) and non-traditional methods (individual claim annuity model, report yea incurred loss development, and pure IBNR count/severity methods) are used to estimate loss and loss expense liability estimates. Loss data is segmented so as to reflect the anomalies in the historical data due to the various loss mitigation initiatives employed over the last several years.

Other Casualty Run-Off

As noted above, other legacy exposures include environmental impairment liability and related coverages, medical malpractice, workers’ compensation, and general liability. Depending on the individual class or lines of business reviewed, either traditional methods (i.e. paid loss development, incurred loss development), non-traditional methods (such as paid survival ratio or IBNR-to-case ratio methods) or a combination of the two are used. In addition, for some of the environmental impairment liability related coverage, approaches based on individual claim department estimates for large remediation sites are extensively included as part of the overall actuarial estimates for environmental impairment liability related exposures.

Prior Year Development

During 2017, the U.S. Run-Off long tail insurance lines recognized $30 million of favorable prior year development.

During 2016, the U.S. Run-Off long tail insurance lines recognized $390 million of unfavorable prior year development.

Asbestos and Environmental (1986 and prior)

In 2017, we recognized favorable net prior year development of $37 million on the retained portion of asbestos claims. This was primarily due to additional reinsurance recoveries identified for this portfolio. The development on the portion of the asbestos business ceded to NICO was unfavorable by $50 million on a gross basis, but had no net impact. For environmental, we recognized $22 million in unfavorable prior year development in consideration of activity related to several large clean-up sites and related accounts as well as a result of top-down actuarial analyses performed during the year. As part of this analysis, we increased our estimates of unallocated loss adjustment expense reserves for such claims, which were partially offset by a decrease in indemnity reserves.

In 2016, we increased gross undiscounted asbestos incurred losses by $106 million and decreased net undiscounted asbestos incurred losses by $20 million. The gross undiscounted change reflects an increase in estimates related to our accounts retroceded to NICO. The favorable development of the net incurred losses was largely a result of higher estimated external reinsurance recoveries on our retained asbestos exposures. For environmental, we increased incurred losses by $211 million primarily due to unfavorable development on several large clean-up sites and related accounts as well as a result of top down actuarial analyses performed during the year.

During 2015, the reported claim activity on the assumed claims increased. We responded to this by modifying certain of our loss-reserve-related assumptions to better reflect our loss development. Additionally, we considered recent industry-wide trends regarding expanding coverage theories for liability. In 2015, both the retained accounts and retroceded accounts ground-up reviews for asbestos were updated. As a result, we increased gross undiscounted asbestos incurred losses by $13 million and increased net undiscounted asbestos incurred losses by $164 million. The net undiscounted change reflects an increase primarily due to third-party assumed reinsurance exposures. With the gross incurred loss increase less than the net incurred loss increase, the resulting ceded incurred losses were reduced. For environmental, we increased gross environmental incurred losses by $214 million and net environmental incurred losses by $117 million as a result of top down actuarial analyses performed during the year, as well as development on a large sediment site.

Excess Workers’ Compensation

We did not recognize any material development in this segment during 2017, 2016 or 2015. The proactive management of settlement negotiations and other claims mitigation strategies minimized the volatility observed during this period.

Other Casualty Run-Off

In 2017, the net prior year development for the remaining legacy was favorable by $15 million. We experienced favorable development on runoff medical malpractice and environmental impairment liability business, which was partially offset by net unfavorable development on other casualty segments.

We increased the reserves for these coverages by $190 million and $636 million during 2016 and 2015, respectively, to reflect updated assumptions about future loss development. The 2016 increase was driven by runoff public entity business where we reacted to the adverse emergence over the last year by increasing our loss development factors to reflect the portfolio’s experience especially in the loss tail instead of relying on the overall excess casualty loss development factors.

Prior Year Development before 2008

The previous development tables include only accident years 2008 to 2017. The following table summarizes (favorable) unfavorable development, of incurred losses and loss adjustment expenses for accident year 2007 and prior by operating segment and major class of business:

Years Ended December 31,
(in millions)		2017		2016		2015
2007 and prior accident year development, excluding the impact of
Adverse Development Reinsurance Agreement, by major class of
of business and driver of development:
U.S. Workers' compensation (before discount)	$	4	$	1,009	$	100
U.S. Excess casualty		141		107		450
U.S. Other casualty		10		338		440
U.S. Financial lines		(44)		31		191
U.S. Property and Special risks		12		12		26
U.S. Personal Insurance		5		(13)		33
Europe Casualty and Financial lines		169		(6)		(2)
Europe Property and Special risks		(5)		1		(1)
Europe and Japan Personal Insurance		1		(5)		1
U.S. Long Tail Insurance lines (before discount)		(46)		363		621
All Other including unallocated loss adjustment expenses		177		3		(11)
Total prior year unfavorable development	$	424	$	1,840	$	1,848

Claims Payout Patterns

The following table presents the historical average annual percentage claims payout on an accident year basis at the same level of disaggregation as presented in the claims development table.

Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance (Unaudited)
Year	1		2		3		4		5		6		7		8		9		10
U.S. Workers' compensation	14.7	%	17.6	%	12.4	%	9.1	%	7.7	%	5.3	%	4.1	%	3.0	%	2.2	%	1.8	%
U.S. Excess casualty	0.6		7.0		13.0		13.4		12.5		11.0		8.4		10.0		2.8		8.3
U.S. Other casualty	9.9		16.3		15.4		14.5		11.8		8.2		5.9		5.6		2.6		1.9
U.S. Financial lines	4.0		17.9		21.1		16.7		13.2		9.3		6.1		6.0		3.0		1.2
U.S. Property and Special risks	30.2		35.7		13.0		7.2		4.6		2.5		1.0		0.9		0.7		0.3
U.S. Personal Insurance	61.4		27.6		3.8		2.2		1.2		0.6		0.4		0.2		0.1		0.2
Europe Casualty and Financial lines	7.9		17.0		13.7		13.7		9.8		7.5		6.3		4.6		5.0		1.0
Europe Property and Special risks	24.0		41.6		17.2		6.3		4.0		1.5		1.0		0.2		0.2		0.2
Europe and Japan Personal Insurance	56.0		26.9		8.0		3.8		2.0		1.1		0.6		0.3		0.3		0.1
U.S. Long Tail Insurance lines	9.8		18.3		16.9		12.5		10.7		6.7		4.0		3.1		1.9		2.0

Discounting of Loss Reserves

At December 31, 2017, the loss reserves reflect a net loss reserve discount of $1.8 billion, including tabular and non-tabular calculations based upon the following assumptions:

Certain asbestos claims were discounted when allowed by the regulator and when payments are fixed and determinable, based on the investment yields of the companies and the payout pattern for the claims. At December 31, 2016, the discount for asbestos reserves was fully amortized.

The tabular workers’ compensation discount is calculated based on a 3.5 percent interest rate and the mortality rate used in the 2007 U.S. Life Table.

The non-tabular workers’ compensation discount is calculated separately for companies domiciled in New York and Pennsylvania, and follows the statutory regulations (prescribed or permitted) for each state. For New York companies, the discount is based on a 5 percent interest rate and the companies’ own payout patterns. For the Pennsylvania companies,the statute specifies discountfactors for accident years 2001 and prior, which are based on a 6 percent interest rate and an industry payout pattern. For accident years 2002 and subsequent, the discount is based on the payout patterns and investment yields of the companies.

In 2013, our Pennsylvania regulator approved use of a consistent discount rate (U.S. Treasury rate plus a liquidity premium) to all of our workers’ compensation reserves in our Pennsylvania-domiciled companies, as well as our use of updated payout patterns specific to our primary and excess workers’ compensation portfolios.

The discount consists of $622 million of tabular discount for workers’ compensation and $1,222 million of non-tabular discount for workers’ compensation. During the years ended December 31, 2017, 2016 and 2015 the benefit/(charge) from changes in discount of ($187) million, $422 million and $71million, respectively, were recorded as part of the policyholder benefits and losses incurred in the Consolidated Statement of Income.

The following table presents the components of the loss reserve discount discussed above:

	December 31, 2017						December 31, 2016
				Legacy						Legacy
				Portfolio -						Portfolio -
				General						General
		North America		Insurance Run-				North America		Insurance Run-
		Commercial		Off Insurance				Commercial		Off Insurance
(in millions)		Insurance		Lines		Total		Insurance		Lines		Total
U.S. Workers' compensation	$	2,465	$	918	$	3,383	$	2,583	$	987	$	3,570
Retroactive reinsurance		(1,539)		-		(1,539)		-		-		-
Total reserve discount*	$	926	$	918	$	1,844	$	2,583	$	987	$	3,570

* Excludes $173 million and $181 million of discount related to certain long tail liabilities in the United Kingdom at December 31, 2017 and December 31, 2016, respectively.

The following table presents the net loss reserve discount benefit (charge):

Years Ended December 31,	2017						2016						2015
				Legacy						Legacy						Legacy
				Portfolio -						Portfolio -						Portfolio -
				General						General						General
		North		Insurance				North		Insurance				North		Insurance
		America		Run-Off				America		Run-Off				America		Run-Off
		Commercial		Insurance				Commercial		Insurance				Commercial		Insurance
(in millions)	Insurance			Lines		Total	Insurance			Lines		Total	Insurance			Lines		Total
Current accident year	$	114	$	-	$	114	$	177	$	-	$	177	$	182	$	-	$	182
Accretion and other
adjustments to prior
year discount		(186)		(44)		(230)		287		64		351		(262)		(74)		(336)
Effect of interest rate
changes		(46)		(25)		(71)		(58)		(48)		(106)		148		77		225
Net reserve discount
benefit (charge)		(118)		(69)		(187)		406		16		422		68		3		71
Amount transferred to run-off
insurance lines		-		-		-		-		-		-		(39)		39		-
Change in discount on loss
reserves ceded under
retroactive reinsurance		(1,539)		-		(1,539)		-		-		-		-		-		-
Net change in total
reserve discount*		(1,657)		(69)		(1,726)		406		16		422		29		42		71
Comprised of:
U.S. Workers' compensation	$	(1,657)	$	(69)	$	(1,726)	$	406	$	23	$	429	$	29	$	46	$	75
Asbestos	$	-	$	-	$	-	$	-	$	(7)	$	(7)	$	-	$	(4)	$	(4)

* Excludes $8 million and $20 million of discount related to certain long tail liabilities in the United Kingdom at December 31, 2017 and 2016, respectively.

During 2017 and 2016, effective interest rates declined due to a decrease in the forward yield curve component of the discount rates reflecting a decline U.S. Treasury rates along the changes in payout pattern assumptions. This resulted in a decrease in the loss reserve discount by $71 million in 2017 and $106 million in 2016.

During 2015, the effective interest rate increased due to the increase in Treasury rates and credit spreads that resulted in an increase in the loss reserve discount by $225 million.

Future Policy Benefits

Future policy benefits primarily include reserves for traditional life and annuity payout contracts, which represent an estimate of the present value of future benefits less the present value of future net premiums. Included in Future policy benefits are liabilities for annuities issued in structured settlement arrangements whereby a claimant has agreed to settle a general insurance claim in exchange for fixed payments over a fixed determinable period of time with a life contingency feature. In addition, reserves for contracts in loss recognition are adjusted to reflect the effect of unrealized gains on fixed maturity and equity securities available for sale, with related changes recognized through Other comprehensive income.

Future policy benefits also include certain guaranteed benefits of variable annuity products that are not considered embedded derivatives, primarily guaranteed minimum death benefits.

For additional information on guaranteed minimum death benefits see Note 14.

The liability for long-duration future policy benefits has been established including assumptions for interest rates which vary by year of issuance and product, and range from approximately 0.1 percent to 14 percent. Mortality and surrender rate assumptions are generally based on actual experience when the liability is established.

Policyholder Contract Deposits

The liability for Policyholder contract deposits is primarily recorded at accumulated value (deposits received and net transfers from separate accounts, plus accrued interest credited at rates ranging from 0.2 percent to 9.0 percent at December 31, 2017, less withdrawals and assessed fees). Deposits collected on investment-oriented products are not reflected as revenues, because they are recorded directly to Policyholder contract deposits upon receipt. Amounts assessed against the contract holders for mortality, administrative, and other services are included in revenues.

In addition to liabilities for universal life, fixed annuities, fixed options within variable annuities, annuities without life contingencies, funding agreements and GICs, policyholder contract deposits also include our liability for (a)certain guaranteed benefits and indexed features accounted for as embedded derivatives at fair value, (b)annuities issued in a structured settlement arrangement with no life contingency and (c)certain contracts we have elected to account for at fair value.

For additional information on guaranteed benefits accounted for as embedded derivatives see Note 14 herein.

For universal life policies with secondary guarantees, we recognize certain liabilities in addition to policyholder account balances. For universal life policies with secondary guarantees, as well as other universal life policies for which profits followed by losses are expected at contract inception, a liability is recognized based on a benefit ratio of (a) the present value of total expected payments, in excess of the account value, over the life of the contract, divided by (b) the present value of total expected assessments over the life of the contract. For universal life policies without secondary guarantees, for which profits followed by losses are first expected after contract inception, we establish a liability, in addition to policyholder account balances, so that expected future losses are recognized in proportion to the emergence of profits in the earlier (profitable) years. Universal life account balances as well as these additional liabilities related to universal life products are reported within Policyholder contract deposits in the Consolidated Balance Sheet. These additional liabilities are also adjusted to reflect the effect of unrealized gains or losses on fixed maturity and equity securities available for sale on accumulated assessments, with related changes recognized throughOther comprehensive income.

Under a funding agreement-backed notes issuance program, an unaffiliated, non-consolidated statutory trust issues medium-term notes to investors, which are secured by GICs issued to the trust by one of our Life and Retirement companies through our Institutional Markets business.

The following table presents Policyholder contract deposits by product line:

At December 31,
(in millions)		2017		2016
Policyholder contract deposits:
Fixed Annuities	$	49,979	$	51,278
Group Retirement		40,422		39,578
Life Insurance		12,448		11,855
Variable and Index Annuities		19,690		16,934
Institutional Markets		8,077		7,286
Legacy Portfolio		4,986		5,285
Total Policyholder contract deposits	$	135,602	$	132,216

Other Policyholder Funds

Other policyholder funds include unearned revenue reserves (URR). URR consist of front-end loads on investment-oriented contracts, representing those policy loads that are non-level and typically higher in initial policy years than in later policy years. URR for investment-oriented contracts are generally deferred and amortized, with interest, in relation to the incidence of estimated gross profits (EGPs) to be realized over the estimated lives of the contracts and are subject to the same adjustments due to changes in the assumptions underlying EGPs as DAC. Amortization of URR is recorded in Policy fees. Similar to Shadow DAC, URR related to investment-oriented products is also adjusted to reflect the effect of unrealized gains or losses on fixed maturity and equity securities available for sale on estimated gross profits, with related changes recognized through Other comprehensive income (shadow URR).

Other policyholder funds also include provisions for future dividends to participating policyholders, accrued in accordance with all applicable regulatory or contractual provisions. Participating life business represented approximately 1.9 percent of gross insurance in force at December 31,2017 and 1.8 percent of gross domestic premiums and other considerations in 2017. The amount of annual dividends to be paid is approved locally by the boards of directors of the Life and Retirement companies. Provisions for future dividend payments are computed by jurisdiction, reflecting local regulations. The portions of current and prior net income and of current unrealized appreciation of investments that can inure to our benefit are restricted in some cases by the insurance contracts and by the local insurance regulations of the jurisdictions in which the policies are in force.

Certain products are subject to experience adjustments. These include group life and group medical products, credit life contracts, accident and health insurance contracts/riders attached to life policies and, to a limited extent, reinsurance agreements with other direct insurers. Ultimate premiums from these contracts are estimated and recognized as revenue with the unearned portions of the premiums recorded as liabilities in Other policyholder funds. Experience adjustments vary according to the type of contract and the territory in which the policy is in force and are subject to local regulatory guidance.