AIG 2013 Annual Report Download - page 101

diversification, from concentration in tax-exempt municipal instruments into investments in private placement debt and
structured securities. Net prior year adverse development, including premium adjustments, was $445 million for 2012
compared to $39 million for 2011.
Acquisition expenses increased due to the change in business mix to higher value lines of business and the
change in business mix from Commercial Insurance to Consumer Insurance.
General operating expenses increased due to the continued investment in strategic initiatives and human
resources, as a result of AIG’s continued investment in its employees. For the year ended December 31, 2012,
investments in strategic initiatives totaled approximately $455 million, representing an increase of approximately
$233 million over the prior year. In addition, bad debt expense increased by approximately $143 million from the prior
year.
Pre-tax operating income decreased in 2012, compared to the prior year, primarily due to a decrease in allocated
net investment income reflecting a decrease in the risk-free rate. Underwriting losses increased slightly compared to
the prior year, reflecting higher acquisition and general operating expenses, and higher adverse prior year
development, partially offset by lower catastrophe and improved current accident year losses, the effect of rate
increases and enhanced risk selection, and an increase in reserve discount of $100 million.
Acquisition expenses increased primarily as a result of higher commission expense due to the restructuring of the
U.S. Casualty, primarily loss-sensitive business, as we move towards higher value lines of business.
General operating expenses increased due to an increase in bad debt expense of approximately $143 million and
investments in strategic initiatives.
Pre-tax operating income increased in 2012, compared to the prior year, reflecting a reduction in underwriting loss
as well as an increase in allocated net investment income resulting primarily from the strategic group benefits
partnership with AIG Life and Retirement. Underwriting results improved due to the combination of lower catastrophe
losses, favorable loss reserve development, the effect of rate increases, enhanced risk selection and portfolio
management. These improvements were offset in part by higher acquisition and general operating expenses.
Acquisition expenses increased in 2012, compared to the prior year, primarily due to an increase in warranty profit
sharing arrangements, increased investment in direct marketing, and a decrease of approximately $49 million in the
benefit from the amortization of VOBA liabilities recognized at the time of the Fuji acquisition.
General operating expenses increased in 2012, compared to the prior year, due to investments in infrastructure
and strategic expansion in growth economy nations.
We continued to invest in a number of strategic initiatives during 2012, including the implementation of global finance
and information systems, preparation for Solvency II compliance, readiness for regulation by the FRB, legal entity
restructuring, and underwriting and claims improvement initiatives. We also continued to streamline our finance,
policy and claims administration and human resources operations. The costs of these initiatives, which are not
specific to either Commercial Insurance or Consumer Insurance, are reported as part of the Other category. For the
year ended December 31, 2012, these costs totaled $391 million, representing an increase of approximately
$195 million over the prior year.
See AIG Property Casualty Underwriting Ratios below for further information on prior year development.
Commercial Insurance Results
Consumer Insurance Results
Other Results
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AIG 2013 Form 10-K 83
ITEM 7 / RESULTS OF OPERATIONS / AIG PROPERTY CASUALTY
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