AIG 2014 Annual Report Download - page 114

ITEM 7 / RESULTS OF OPERATIONS / CONSUMER INSURANCE
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$440 million in 2013. These expenses, while not deferrable, are expected to generate business that has an average expected
overall persistency of approximately five years and, in Japan, where the majority of the expenses are incurred, approximately
nine years. Excluding the impact of foreign exchange, direct marketing expenses decreased by approximately $24 million in
2014 compared to 2013. Direct marketing accounted for approximately 17 percent of net premiums written in both 2014 and
2013.
General operating expenses decreased in 2014 compared to 2013. Excluding the effect of foreign exchange, general
operating expenses remained flat, as efficiencies from organizational realignment initiatives were offset by increased
technology-related expenses.
Net investment income decreased in 2014 compared to 2013, primarily due to a decrease in interest rates during 2014, as
yields on new purchases were lower than the weighted average yield of the overall portfolio, lower income on alternative
investments, and lower income associated with investments accounted for under the fair value option method as an increase
related to the PICC P&C rights offerings was more than offset by a decrease from fixed maturity investments accounted for
under the fair value option. These were partially offset by the effect of continued portfolio diversification. Additionally, the
decrease in allocated net investment income was also due to a reduction in net loss reserves.
See MD&A — Investments for additional information on the Non-Life Insurance Companies invested assets, investment
strategy, and asset-liability management process.
2013 and 2012 Comparison
Pre-tax operating income increased in 2013 compared to 2012, primarily due to a lower underwriting loss, partially offset by a
decrease in net investment income. Underwriting results improved primarily due to lower catastrophe losses and higher net
favorable loss reserve development, coupled with lower acquisition expenses. Catastrophe losses in 2013 were $77 million,
compared to $382 million in 2012. Net favorable loss reserve development was $155 million in 2013, compared to $20 million
in 2012. Additionally, 2013 included approximately $41 million of favorable loss reserve development from Storm Sandy.
Foreign exchange did not have a significant impact on pre-tax operating income compared to 2012.
Acquisition expenses decreased in 2013 compared to 2012, primarily due to the change in business mix, partially offset by
increased costs in growth-targeted lines of business. Direct marketing expenses, excluding commissions, for 2013 were
$440 million, compared to $452 million in 2012. Excluding the effect of foreign exchange, direct marketing expenses increased
by approximately $46 million in 2013 compared to 2012.
General operating expenses decreased slightly in 2013 compared to 2012, primarily due to reduced costs of strategic
initiatives, technology-related and infrastructure expenses. These were largely offset by the increase in employee incentive
plan expenses, which reflected 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, as well as the strategic expansion into growth economy nations.
Net investment income decreased in 2013 compared to 2012, primarily due to a change in allocated investment income as a
result of lower net loss reserves from a change in the business mix.
Personal Insurance Net Premiums Written
The following table presents Personal Insurance net premiums written by major line of business:
Years Ended December 31, Percentage Change
(in millions) 2014 2013 2012
2014 vs. 2013 2013 vs. 2012
Accident & Health $5,441 $ 5,714 $ 6,089 (5)% (6)%
Personal Lines 6,971 6,986 7,213 - (3)
Total Personal Insurance net premiums written $12,412 $ 12,700 $ 13,302 (2)% (5)%