AIG 2014 Annual Report Download - page 103

ITEM 7 / RESULTS OF OPERATIONS / COMMERCIAL INSURANCE
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low interest rate environment, partially offset by growth in average assets. See MD&A – Investments – Life Insurance
Companies for additional information on the investment strategy, asset-liability management process and invested assets of
our Life Insurance Companies, which include the invested assets of the Institutional Markets business.
General operating expenses in 2014 increased slightly compared to 2013, primarily due to investments in technology.
2013 and 2012 Comparison
Pre-tax operating income for 2013 increased compared to 2012, due in part to higher net investment income from alternative
investments, partially offset by lower base net investment income. Interest credited to policyholder account balances in 2012
included $110 million of expense resulting from a comprehensive review of reserves for the GIC portfolio. Results for 2013
included a full year of the growing stable value wrap business, which contributed $31 million to the increase in pre-tax
operating income compared to 2012. Stable value wrap notional assets under management grew to $24.6 billion at December
31, 2013 from $10.4 billion at December 31, 2012, including the notional amount of contracts transferred from an AIG affiliate.
Net investment income for 2013 increased slightly compared to 2012, primarily due to higher net investment income from
alternative investments, largely offset by lower income from the base portfolio. The increase in alternative investment income
in 2013 compared to 2012 reflected higher hedge fund income due to favorable equity market conditions. The decrease in
base net income was primarily due to investment of available cash, including proceeds from sales of securities made during
2013 to utilize capital loss carryforwards, at rates below the weighted average yield of the overall portfolio.
General operating expenses in 2013 increased compared to 2012, primarily to support increased volume in the stable value
wrap business.
Institutional Markets Premiums, Deposits and Net Flows
For Institutional Markets, premiums represent amounts received on traditional life insurance policies and life-contingent payout
annuities or structured settlements. Premiums and deposits is a non-GAAP financial measure that includes direct and
assumed premiums as well as deposits received on universal life insurance and investment-type annuity contracts, including
GICs and stable value wrap funding agreements.
The following table presents a reconciliation of Institutional Markets premiums and deposits to GAAP premiums:
Years Ended December 31, 
(in millions) 2014 2013 2012
Premiums and deposits $3,797 $ 991 $ 774
Deposits (3,344) (354) (289)
Other (21) (27) (27)
Premiums $432 $ 610 $ 458
The decrease in premiums in 2014 compared to 2013 was primarily due to a high volume of single-premium products sold in
2013, including life-contingent payout annuities. Sales of these products decreased in 2014 compared to 2013 due to a more
competitive environment as well as continued low interest rates. The increase in deposits in 2014 compared to 2013 included
a $2.5 billion deposit to the separate accounts of one of the Life Insurance Companies for a stable value wrap funding
agreement. The majority of stable value wrap sales are measured based on the notional amount included in assets under
management, but do not include the receipt of funds that would be included in premiums and deposits. The increase in
deposits in 2014 compared to 2013 also reflected a $450 million GIC issued in 2014.
The increase in premiums in 2013 compared to 2012 reflected a high volume of single-premium product sales in 2013,
including structured settlements with life contingencies and terminal funding annuities. The increase in deposits in 2013
compared to 2012 reflected strong sales of high net worth products, primarily private placement variable annuities.