AIG 2011 Annual Report Download - page 90

Chartis Underwriting Ratios
The following table summarizes the Chartis combined ratios based on GAAP data and the impact of catastrophe
losses, prior year development and related reinstatement premiums and premium adjustments on loss-sensitive
contracts on the Chartis consolidated loss and combined ratios:
Increase (Decrease)
Years Ended December 31, 2011 2010 2009 2011 vs. 2010 2010 vs. 2009
Loss ratio 78.3 85.7 78.6 (7.4) 7.1
Catastrophe losses and reinstatement premiums (9.2) (3.3) (0.1) (5.9) (3.2)
Prior year development net of premium adjustments and
including reserve discount (0.4) (13.2) (8.6) 12.8 (4.6)
Loss ratio, as adjusted 68.7 69.2 69.9 (0.5) (0.7)
Expense ratio 30.7 31.1 29.4 (0.4) 1.7
Combined ratio 109.0 116.8 108.0 (7.8) 8.8
Catastrophe losses and reinstatement premiums (9.2) (3.3) (0.1) (5.9) (3.2)
Prior year development net of premium adjustments and
including reserve discount (0.4) (13.2) (8.6) 12.8 (4.6)
Combined ratio, adjusted 99.4 100.3 99.3 (0.9) 1.0
Loss Ratios
The following table presents the components of net prior year adverse development for Chartis:
Years Ended December 31,
(in millions) 2011 2010 2009
Gross prior year adverse loss development $ 211 $ 4,850 $ 2,758
Increase in loss reserve discount 33 (562) (81)
Returned/(additional) premium on loss-sensitive business (172) (8) 118
Net prior year adverse loss development $72$ 4,280 $ 2,795
The decrease in the loss ratio for 2011 compared to 2010 reflects the substantial decrease in the net prior year
loss development, net of premiums and loss-sensitive premium adjustments in 2011 as shown in the table above
and to a lesser extent the improvement in foreign currency exchange rates. The decrease in the loss ratio was
partially offset by the effect of increased catastrophe losses in 2011 compared to 2010.
This decrease in the adjusted 2011 loss ratio was partially due to the effect of the Fuji acquisition offset by an
increase in the 2011 accident year loss ratio for the Specialty Workers’ Compensation and Excess Casualty
business (within the U.S. and Canada region) and the Primary Casualty and Professional Indemnity businesses
(within the Europe region).
The 2011 net adverse loss development charge of $72 million, primarily relates to the primary casualty, workers’
compensation, and environmental business lines, partially offset by the net favorable loss development in the
financial lines and excess casualty lines.
The loss ratio for Chartis increased in 2010 compared to 2009, primarily as a result of the net adverse loss
development for prior accident years recorded in 2010.
Approximately 80 percent of the 2010 net prior year adverse loss development charge of $4.3 billion relates to
the asbestos, excess casualty, excess workers’ compensation, and primary workers’ compensation lines. Further,
83 percent of this charge relates to accident years 2007 and prior (accident years before the financial crisis in
2008) and 65 percent relates to accident years 2005 and prior (accident years prior to the start of the managed
reduction in these long-tail lines of business).
76 AIG 2011 Form 10-K