AIG 2013 Annual Report Download - page 141

adjustment expenses of $157 million and $22 million, respectively, which were partially offset by a $34 million
increase in second-lien and international claims and claims adjustment expenses. The decline in first-lien claims and
claims adjustment expenses incurred was primarily the result of lower newly reported delinquencies and higher cure
rates, which were partially offset by $46 million of unfavorable prior year development in 2013 compared to
unfavorable prior year development of $17 million in 2012. The decline in student loan claims and claims adjustment
expenses reflect recoveries on prior paid losses and the commutation of a significant portion of the business in early
2013. Second-lien claims and claims adjustment expenses increased primarily due to increased overturns of
previously denied claims. International claims adjustment expense increased due to increases to reserves as the
portfolio continued to run-off.
New insurance written, which represents the original principal balance of the insured mortgages, increased
33 percent due to elevated levels of refinancing activity during 2013 and the acceptance of UGC’s risk-based pricing
model by approximately 300 new lenders.
Mortgage Guaranty recorded pre-tax operating income in 2012 compared to a pre-tax operating loss in 2011. The
decrease in claims and claims adjustment expenses reflected decreases in first and second-lien businesses partially
offset by an increase in international claims and claims adjustment expenses. Claims and claims adjustment
expenses in 2012 included favorable prior year loss development in second liens, student loans, and international
business, partially offset by unfavorable development in first liens. The decrease in first-lien claims and claims
adjustment expenses reflected lower levels of newly reported delinquencies, an improvement in the cure rate and
lower unfavorable loss development in 2012 compared to 2011. The unfavorable development in 2012 resulted from
delinquencies for which claim requests were not made, partially offset by favorable development arising from the
claims requests sent to lenders. The decline in second-lien business claims and claims adjustment expenses
reflected a decrease in claims and claims adjustment expenses paid as more business reached the respective stop
loss limits. The increased claims and claims adjustment expenses in the international business reflected a reduction
in claim reserves in 2011 due to a settlement of certain delinquencies with a major European lender.
These items were partially offset by a decline in first-lien net premiums earned, reflecting higher premium refunds
due to the rescissions arising from the claims requests sent to lenders during the fourth quarter of 2011 and
continuing throughout 2012. Additionally, net premiums earned declined on second-lien and international businesses,
both of which were placed into run-off during 2008. Underwriting expenses increased driven primarily by an increase
in underwriting, sales and product initiatives, all of which supported the increase in new insurance written for the
year.
New insurance written was approximately $37 billion and $19 billion in 2012 and 2011, respectively. The increase in
new insurance written was the result of the market acceptance by lenders of UGC’s risk-based pricing model and
withdrawal of certain competitors from the market during 2011.
GCM’s pre-tax income and pre-tax operating income increased in 2013 compared to 2012 primarily due to an
improvement in net credit valuation adjustments on derivative assets and liabilities, partially offset by a decline in
unrealized market valuation gains related to the super senior credit default swap (CDS) portfolio and an increase in
operating expenses.
Net credit valuation adjustment gains of $195 million were recognized in 2013 compared to net credit valuation
adjustment losses of $30 million in 2012. The improvement resulted primarily from lower losses on derivative
liabilities due to less significant tightening of AIG’s credit spreads in 2013 compared to 2012 and higher gains on
derivative assets due to more significant tightening of counterparty credit spreads in 2013 compared to 2012.
Unrealized market valuation gains on the CDS portfolio of $550 million and $617 million were recognized in 2013 and
2012, respectively. The decline resulted primarily from amortization, price movements, terminations and maturities
within the CDS portfolio.
2012 and 2011 Comparison
Global Capital Markets Results
2013 and 2012 Comparison
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AIG 2013 Form 10-K 123
ITEM 7 / RESULTS OF OPERATIONS / OTHER OPERATIONS
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