AIG 2013 Annual Report Download - page 74

USE OF NON-GAAP MEASURES
In Item 6. Selected Financial Data and throughout this MD&A, we present our financial condition and results of
operations in the way we believe will be most meaningful, representative and most transparent. Some of the
measurements we use are ‘‘non-GAAP financial measures’’ under SEC rules and regulations. GAAP is the acronym
for ‘‘accounting principles generally accepted in the United States.’’ The non-GAAP financial measures we present
may not be comparable to similarly-named measures reported by other companies.
Book Value Per Common Share Excluding Accumulated Other Comprehensive Income (Loss) (AOCI) is used
to show the amount of our net worth on a per-share basis. We believe Book Value Per Common Share Excluding
AOCI is useful to investors because it eliminates the effect of non-cash items that can fluctuate significantly from
period to period, including changes in fair value of our available for sale securities portfolio and foreign currency
translation adjustments. Book Value Per Common Share Excluding AOCI is derived by dividing Total AIG
shareholders’ equity, excluding AOCI, by Total common shares outstanding. The reconciliation to book value per
common share, the most comparable GAAP measure, is presented in Item 6. Selected Financial Data.
We use the following operating performance measures because we believe they enhance understanding of the
underlying profitability of continuing operations and trends of AIG and our business segments. We believe they also
allow for more meaningful comparisons with our insurance competitors. When we use these measures,
reconciliations to the most comparable GAAP measure are provided in the Results of Operations section of this
MD&A.
•AIG — After-tax operating income (loss) attributable to AIG is derived by excluding the following items from
net income (loss) attributable to AIG: income (loss) from discontinued operations, net loss (gain) on sale of
divested businesses and properties, income from divested businesses, legacy tax adjustments primarily related to
certain changes in uncertain tax positions and other tax adjustments, legal reserves (settlements) related to
‘‘legacy crisis matters,’’ deferred income tax valuation allowance (releases) charges, changes in fair value of AIG
Life and Retirement fixed maturity securities designated to hedge living benefit liabilities (net of interest expense),
changes in benefit reserves and deferred policy acquisition costs (DAC), value of business acquired (VOBA), and
sales inducement assets (SIA) related to net realized capital (gains) losses, AIG Property Casualty other (income)
expense — net, (gain) loss on extinguishment of debt, net realized capital (gains) losses, non-qualifying derivative
hedging activities, excluding net realized capital (gains) losses, and bargain purchase gain. ‘‘Legacy crisis matters’’
include favorable and unfavorable settlements related to events leading up to and resulting from our September
2008 liquidity crisis and legal fees incurred by AIG as the plaintiff in connection with such legal matters.
•AIG Property Casualty
•Pre-tax operating income (loss): includes both underwriting income (loss) and net investment income, but
excludes net realized capital (gains) losses, other (income) expense — net, legal settlements related to legacy
crisis matters described above, and bargain purchase gain. Underwriting income (loss) is derived by reducing net
premiums earned by claims and claims adjustment expenses incurred, acquisition expenses and general
operating expenses.
•Ratios: AIG Property Casualty, along with most property and casualty insurance companies, uses the loss ratio,
the expense ratio and the combined ratio as measures of underwriting performance. These ratios are relative
measurements that describe, for every $100 of net premiums earned, the amount of claims and claims
adjustment expense, and the amount of other underwriting expenses that would be incurred. A combined ratio of
less than 100 indicates underwriting income and a combined ratio of over 100 indicates an underwriting loss.
The underwriting environment varies across countries and products, as does the degree of litigation activity, all
of which affect such ratios. In addition, investment returns, local taxes, cost of capital, regulation, product type
and competition can have an effect on pricing and consequently on profitability as reflected in underwriting
income and associated ratios.
•Accident year loss and combined ratios, as adjusted: both the accident year loss and combined ratios, as
adjusted, exclude catastrophe losses and related reinstatement premiums, prior year development, net of
premium adjustments, and the impact of reserve discounting. Catastrophe losses are generally weather or
seismic events having a net impact on AIG Property Casualty in excess of $10 million each.
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AIG 2013 Form 10-K56
ITEM 7 / USE OF NON-GAAP MEASURES
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