AIG 2013 Annual Report Download - page 99

19FEB201414081482
NET PREMIUMS WRITTEN*
(in millions)
PRE-TAX OPERATING INCOME (LOSS)
(in millions)
2013 20112012
Commercial
Commercial
Consumer
Consumer
Other
2013 20112012
$20,842 $20,300 $21,055
$13,552 $14,150 $13,762
$2,398
$2,097
$317
$877
$624 $1,269
$292
* The operations reported as part of Other do not have meaningful levels of Net premiums written.
Pre-tax operating income increased in 2013, compared to the prior year, due to an improvement in underwriting
results and an increase in net investment income. The improvement in underwriting results reflected lower
catastrophe losses, an improvement in current accident year losses, and an increase in reserve discount compared
to the prior year. Net investment income increased due to increases in alternative investment returns and income
associated with the PICC P&C shares that are accounted for under the fair value option. The asset diversification
strategies that we executed during 2012 enabled us to maintain similar yields in the portfolio despite the continued
low interest rate environment in 2013. Catastrophe losses were $787 million and $2.7 billion for the years ended
December 31, 2013 and 2012, respectively. The net benefit in reserve discount was $309 million and $63 million for
the years ended December 31, 2013 and 2012, respectively. As discussed further in the Discounting of Reserves
section, we revised our estimate for discounting of loss reserves with the agreement of our Pennsylvania regulator.
We previously applied different Pennsylvania-prescribed discounting practices and factors to our primary and excess
workers’ compensation reserves in Commercial Insurance and Other. Our revised estimate provides a more
consistent approach that better aligns our discount rate with our future expected risk-adjusted yield on the underlying
assets and payout patterns.
Acquisition expenses decreased in 2013, compared to the prior year, primarily due to the timing of certain guaranty
funds and other assessments, and the change in reinsurance structures in Commercial Insurance, which were
partially offset by an increase in acquisition expenses in Consumer Insurance due to the change in business mix.
General operating expenses decreased in 2013, compared to the prior year, due to decreases in bad debt expense
and reduced costs for strategic initiatives. Bad debt expense decreased by $149 million from $134 million in the prior
year. The decrease in bad debt expense was primarily due to reductions in prior year reserves, as collections
exceeded the originally estimated recoveries. Strategic initiatives which include infrastructure project expenses and
those severance charges borne by AIG Property Casualty, decreased by $158 million from $455 million in the prior
year. These decreases were partially offset by an increase in the cost of our employee incentive plans of
$247 million. The increase in the cost of our employee incentive plans was primarily due to the alignment of
employee performance with the overall performance of the organization, including our stock performance, and
accelerated vesting provisions for retirement-eligible individuals in the 2013 share-based plan.
Pre-tax operating income increased in 2013, compared to the prior year, primarily due to a decrease in catastrophe
losses to $710 million from $2.3 billion in the prior year, partially offset by a decrease in allocated net investment
income as a result of a decrease in the risk-free rates used in our investment income allocation model. The lower
underwriting loss in 2013 compared to the prior year was primarily due to lower catastrophe losses, rate increases,
2013 and 2012 Comparison
AIG Property Casualty Results
Commercial Insurance Results
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 81
ITEM 7 / RESULTS OF OPERATIONS / AIG PROPERTY CASUALTY
..................................................................................................................................................................................