AIG 2011 Annual Report Download - page 131

2011 and 2010 Comparison
UGC recorded a pre-tax loss in 2011 compared to pre-tax income in 2010, primarily due to:
• an increase in claims and claims adjustment expenses of $334 million, primarily in first-lien business,
reflecting increased overturns of denied and rescinded claims and unfavorable first-lien loss development of
$76 million in 2011, compared to favorable loss development of $385 million in 2010, partially offset by
lower levels of newly reported delinquencies in the first-lien, second-lien and international products, and a
reduction in reserves due to an agreement to resolve certain delinquencies with a major European lender
that resulted in a $43 million benefit;
• declines in earned premiums from the second-lien, private student loan and international businesses, which
were placed into runoff during 2008, partially offset by an increase in earned premiums from first-lien
business; and
• the accrual of $22 million to pay for previously rescinded losses, certain legal fees and interest in connection
with an adverse judgment. UGC has appealed the court’s decision.
Partially offsetting these declines was a reduction in underwriting expenses compared to 2010 reflecting a
$94 million accrual of estimated remedy losses in 2010. Remedy losses represent the indemnification for losses
incurred by lenders arising from obligations contractually assumed by UGC as a result of underwriting services
provided to lenders during times of high loan origination activity. UGC believes it has adequately accrued for
these losses at December 31, 2011. Pre-tax income for 2010 also includes gains of approximately $150 million from
legal settlements and reinsurance commutations.
2010 and 2009 Comparison
Mortgage Guaranty reported pre-tax income in 2010 compared to a pre-tax loss in 2009, driven by:
• favorable prior year reserve development, primarily in first liens, due to increased cures, rescissions and
claims denials, compared to unfavorable development in 2009;
• gains of $150 million in 2010 from legal settlements and reinsurance commutations; and
• lower levels of newly reported delinquencies in the first-lien, second-lien and international products, partially
offset by increased delinquencies in private student loans. During 2010, UGC commuted the majority of its
private student loan portfolio.
Partially offsetting the improved 2010 results were:
• lower earned premiums in first-lien, second-lien, and international businesses in 2010;
• the accrual of $94 million of remedy losses in 2010 as noted above; and
• the amortization of the second-lien premium deficiency reserve of $222 million in 2009.
Risk-in-Force
The following table presents risk in force and delinquency ratio information for Mortgage Guaranty domestic
business:
At December 31,
(dollars in billions) 2011 2010
Domestic first-lien:
Risk in force $ 25.6 $ 25.3
60+ day delinquency ratio on primary loans(a) 13.9% 16.3%
Domestic second-lien:
Risk in force(b) $ 1.5 $ 2.1
(a) Based on number of policies.
(b) Represents the full amount of second-lien loans insured reduced for contractual aggregate loss limits on certain pools of loans, usually
10 percent of the full amount of loans insured in each pool. Certain second-lien pools have reinstatement provisions, which will expire as the
loan balances are repaid.
AIG 2011 Form 10-K 117