AIG 2011 Annual Report Download - page 89

Chartis has continued a strategy that started in 2010 to improve the allocation of its reinsurance between
traditional reinsurance markets and capital markets. As part of this strategy, Chartis has secured $1.45 billion in
protection for U.S. hurricanes and earthquakes through three separate catastrophe bond transactions. In 2011,
Chartis secured $575 million in a bond transaction and in 2010, $875 million through two separate bond
transactions. These bond transactions in 2011 and 2010 reduced net premiums written by approximately
$201 million and $208 million, respectively.
Growing higher value Consumer business continues to be a key strategy. Total Consumer Insurance net
premiums written increased 21 percent for the year ended December 31, 2011 compared to 2010. Excluding the
effects of foreign exchange and the Fuji acquisition, Consumer Insurance net premiums written declined by one
percent, primarily due to the non-renewal of certain programs in the U.S. and Canada region that did not meet
internal performance targets.
In 2011, management implemented certain initiatives designed to provide for a more effective use of capital,
including:
• restructuring the renewals of certain Commercial Casualty loss-sensitive programs from a retrospectively
rated premium structure to a loss reimbursement deductible structure; and
• the decision to cease writing excess workers’ compensation business as a stand-alone product.
The effect of these actions decreased premiums in 2011 by approximately $0.6 billion. However, given the
capital intensive nature of these classes of casualty business, Chartis expects that over time, these actions will
improve its results.
2010 and 2009 Comparison
Chartis’ net premiums written increased in 2010 compared to 2009, primarily due to the Fuji acquisition and, to
a lesser extent, strategic growth in higher value lines of business. Excluding the effects of the Fuji transaction,
Chartis’ net premiums written decreased in 2010 by 2.6 percent compared to 2009. This decrease is primarily due
to declines in Commercial businesses in the U.S. and other developed markets, as well as the effects of risk
management initiatives in the U.S. and Canada region designed to reduce catastrophe-exposed business in
property and overall exposure in Chartis’ long-tail casualty lines. The decrease also reflects Chartis’ commitment
to maintain price discipline in lines where market rates are unsatisfactory, as well as overall rate declines and a
decline in ratable exposures such as workers’ compensation.
Further, during 2010, Chartis entered into two separate three-year reinsurance transactions, secured through the
issuance of catastrophe bonds, which provide protection from U.S. hurricanes and earthquakes, and reduced 2010
net premiums written by approximately $208 million.
AIG transacts business in most major foreign currencies. The following table summarizes the effect of changes in
foreign currency exchange rates on Chartis net premiums written:
Years Ended December 31, 2011 vs. 2010 2010 vs. 2009
Increase in original currency* 7.3% 1.8%
Foreign exchange effect 2.9 1.3
Increase as reported in U.S. dollars 10.2% 3.1%
* Computed using a constant exchange rate for each period.
AIG 2011 Form 10-K 75