AIG 2013 Annual Report Download - page 111

The general operating expense ratio increased by 2.4 points due to increases in bad debt expense, investments in
strategic initiatives and human resources, coupled with a lower net premiums earned base. The lower net premiums
earned base contributed approximately 0.2 points to the increase in the general operating expense ratio. Bad debt
expense increased by approximately $143 million, which contributed approximately 0.7 points to the general
operating expense ratio increase in the year ended December 31, 2012. For the year ended December 31, 2012,
investments in strategic initiatives, commercial lines platform, our scientific group, underwriting and pricing tools
totaled approximately $51 million, representing an increase of approximately $41 million over the prior year. The
remainder of the general operating expense ratio increase was primarily due to higher personnel costs, as part of
AIG’s continued investment in its employees.
The accident year combined ratio, as adjusted, increased by 1.5 points for the year ended December 31, 2012.
The accident year loss ratio, as adjusted, in the year ended December 31, 2012 improved in both A&H and Personal
lines. The improvement in A&H is primarily attributable to favorable underwriting performance of individual personal
accident business in Asia Pacific, targeted underwriting actions, coupled with rate increases and risk selection of
group A&H in the U.S. and the overall travel business. The improvement in Personal lines is primarily attributable to
improved underwriting and risk selection in the warranty line of business, price sophistication and rate strengthening
for Japan, EMEA automobile and the U.S. private client group, and targeted business mix changes that resulted in
faster growth in non-automobile products than the automobile line of business. Included in the accident year loss
ratio, as adjusted, for the year ended December 31, 2012, are severe losses totaling $33 million. There were no
severe losses for the year ended December 31, 2011.
The acquisition ratio increased by 1.2 points primarily due to profit sharing arrangements in lines of business targeted
for growth, direct marketing expenses and the reduction in VOBA benefit. Overall direct marketing costs increased by
approximately 9 percent in 2012; total direct marketing spending outside the U.S. increased by approximately
18 percent in the same period. There was also a decrease of approximately $49 million in the benefit from the
amortization of VOBA liabilities recognized at the time of the Fuji acquisition.
The general operating expense ratio increased by 0.9 points as a result of incurring additional expenses to grow key
lines of business across a number of geographic areas and strategic expansion in growth economy nations. For the
year ended December 31, 2012, investments in strategic initiatives, including investments in an integrated consumer
lines platform and information systems infrastructure totaled approximately $44 million, representing an increase of
approximately $27 million or 0.2 points over the prior year. The remainder of the increase was primarily due to higher
personnel costs, as we continue our efforts to align employee performance across the globe with our strategic goals.
The following table presents AIG Property Casualty’s net investment income and net realized capital gains
(losses):
Net Investment Income by Component
Interest and dividends $ 4,215 $ 3,988 (2)% 6%
Alternative investments 484 371 80 30
Fair value option assets 110 (8) 158 NM
Other income (expense) – net (29) (98) 62 70
Total net investment income $ 4,780 $ 4,253 10% 12%
Net Investment Income by Operating Segment
Commercial Insurance $ 2,769 $ 3,118 (10)% (11)%
Consumer Insurance 451 354 (18) 27
Other 1,560 781 54 100
Total net investment income $ 4,780 $ 4,253 10% 12%
Net realized capital gains $ 211 $ 957 80% (78)%
Consumer Insurance Ratios
AIG Property Casualty Net Investment Income and Net Realized Capital Gains (Losses)
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AIG 2013 Form 10-K 93
ITEM 7 / RESULTS OF OPERATIONS / AIG PROPERTY CASUALTY
Percentage Change
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 4,124
870
284
(11)
$ 5,267
$ 2,500
372
2,395
$ 5,267
$ 380
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