AIG 2011 Annual Report Download - page 69

Europe and Asia Pacific as a result of underwriting actions, and Personal Lines improved as a result of rate
increases in key markets, such as the Far East region.
Expense Discipline
To achieve expense reductions, Chartis plans to take advantage of its global footprint to improve efficiencies
and expand the use of shared services to support regional businesses in strategic locations, reduce use of external
services and negotiate preferred rates with vendors. In the near term, Chartis may increase certain operating
expenses in order to develop future improvements and efficiencies.
As a result of the business mix shift and the investment in the growth economy nations, policy acquisition
expenses are expected to increase in 2012. Chartis expects, however, that these changes will ultimately help to
generate business with overall more favorable underwriting results.
Risk Selection
Commercial Insurance continued to pursue a comprehensive strategy in 2011 to strengthen its portfolio
performance. This includes specific actions in the U.S. Specialty Workers Compensation business. The Commercial
Property business continues to improve through increased rates, improved terms and conditions and reductions in
exposures to U.S. catastrophes. Additionally, Commercial Insurance is implementing the development and use of
pricing and risk selection tools in many lines of business.
Consumer Insurance continued to exercise underwriting discipline in risk selection processes to balance risk
exposures to the premiums charged in most lines of business in 2011. Improved premium pricing methods through
a better understanding of risk attributes has led to better risk selection. Investments continue to be made in risk
and marketing analytics, which will further strengthen Chartis’ capabilities in these areas.
Capital Deployment
Chartis’ scale and geographical diversification also allow the business to strategically deploy capital to pursue
the more attractive long-term opportunities around the world. Chartis regularly reviews and adjusts its business
mix with the goals of aligning risk profile with risk tolerance and meeting capital management objectives.
In the second half of 2011, Chartis began to restructure renewals of certain Commercial Casualty loss-sensitive
programs from a retrospectively rated premium structure to a more capital efficient loss reimbursement deductible
structure. The deductible structure reduces net premiums written and limits the variability around individual
insured premium and claim adjustments when compared to retrospectively rated programs. This overall reduction
in the premium and claims adjustment variability creates a corresponding reduction in the required capital needed
to support this business. The effect of these initiatives decreased net premiums written in casualty lines for 2011.
Chartis expects further declines in net premiums written in this class of business through 2012. However, given the
capital-intensive nature of these classes of business, Chartis expects that over time, these actions will improve its
overall results.
In 2012, Chartis expects to continue to execute capital management initiatives by enhancing broad-based risk
tolerance guidelines for its operating units and executing underwriting and reinsurance strategies to improve
capital ratios and reduce volatility, increase return on equity by line of business and reduce exposure to businesses
with inadequate pricing and increased loss trends.
Investments
Consistent with AIG’s worldwide insurance investment policy, Chartis places primary emphasis on investments
in fixed maturity securities issued by corporations, municipalities and other governmental agencies, and to a lesser
extent, common stocks, private equity, hedge funds and other alternative investments.
Fixed maturity securities held by Chartis historically have included tax-exempt municipal bonds, which provided
attractive after-tax returns and limited credit risk. In order to better optimize its overall investment portfolio,
including risk-return and tax objectives, Chartis has begun to shift from tax-exempt municipal bonds to taxable
AIG 2011 Form 10-K 55