AIG 2011 Annual Report Download - page 95

Commercial Insurance Underwriting Ratios
The following table presents the Commercial Insurance 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 Commercial Insurance consolidated loss and combined ratios:
(Increase) (Decrease)
Years Ended December 31, 2011 2010 2009 2011 vs. 2010 2010 vs. 2009
Loss ratio 85.0 88.5 81.9 (3.5) 6.6
Catastrophe losses and reinstatement premiums (11.6) (4.7) (0.2) (6.9) (4.5)
Prior year development net of premium adjustments and including
reserve discount 0.3 (10.2) (6.7) 10.5 (3.5)
Loss ratio, as adjusted 73.7 73.6 75.0 0.1 (1.4)
Expense ratio 26.2 26.8 24.5 (0.6) 2.3
Combined ratio 111.2 115.3 106.4 (4.1) 8.9
Catastrophe losses and reinstatement premiums (11.6) (4.7) (0.2) (6.9) (4.5)
Prior year development net of premium adjustments and including
reserve discount 0.3 (10.2) (6.7) 10.5 (3.5)
Combined ratio, adjusted 99.9 100.4 99.5 (0.5) 0.9
The following table presents the components of net prior year adverse development for Commercial Insurance:
Years Ended December 31,
(in millions) 2011 2010 2009
Gross prior year adverse loss development $98$ 2,594 $ 1,536
Increase in loss reserve discount (40) (400) (81)
Returned (additional) premium on loss-sensitive business (172) (8) 118
Net prior year adverse (favorable) loss development $ (114) $ 2,186 $ 1,573
Loss Ratios
The loss ratio improved in 2011 compared to 2010 due to the effect of net prior year adverse loss development
in 2010 and an increase in additional premiums from loss-sensitive business in 2011. These items were largely
offset by the increase in catastrophe losses in 2011.
The loss ratio increased in 2010 compared to 2009 primarily due to the net prior year adverse loss development
in 2010 for the excess casualty and workers’ compensation lines of business.
For a more detailed discussion of Net Prior Year Loss Development, see the Liability for Unpaid Claims and
Claims Adjustment Expense section that follows.
Expense Ratios
The expense ratio improved in 2011 compared to 2010 due to the effects of foreign currency exchange rates and
overall growth in the business. In addition, the expense ratio reflects the effects of continued enhancements to
regional governance, risk management capabilities and investments within growth economy nations.
The expense ratio increased in 2010 compared to 2009 due to a change in the mix of business from low
commission casualty business to higher commission property business. In addition, the increase in general
operating expenses reflects Chartis’ strategy to continue the enhancement and build-out of its financial systems.
Further, during 2010, Chartis recorded increased expenses relating to long-term incentive programs that will
continue to align employee performance incentive programs with profitability, capital management, risk
management, and other performance measures
AIG 2011 Form 10-K 81