AIG 2005 Annual Report Download - page 83

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
cost per $100 of premium production. A combined ratio below (in millions, except ratios) 2005 2004 2003
100 demonstrates underwriting profit; a combined ratio above Domestic General:
100 demonstrates underwriting loss. Loss ratio 89.59 83.88 78.35
Net premiums written are initially deferred and earned Expense ratio 21.00 19.21 17.25
based upon the terms of the underlying policies. The net Combined ratio 110.59 103.09 95.60
unearned premium reserve constitutes deferred revenues which Foreign General:
are generally earned ratably over the policy period. Thus, the Loss ratio 53.66 61.61 55.52
net unearned premium reserve is not fully recognized in Expense ratio(e) 31.90 29.20 27.82
income as net premiums earned until the end of the policy Combined ratio(f) 85.56 90.81 83.34
period. Consolidated:
The underwriting environment varies from country to Loss ratio 81.09 78.78 73.06
country, as does the degree of litigation activity. Regulation, Expense ratio 23.60 21.52 19.62
product type and competition have a direct effect on pricing Combined ratio(a) 104.69 100.30 92.68
and consequently on profitability as reflected in underwriting (a) The effect of catastrophe related losses on the consolidated General
profit and statutory general insurance ratios. Insurance combined ratio for 2005, 2004 and 2003 was 7.06, 2.74
and 0.27, respectively. Catastrophe related losses for 2005, 2004 and
General Insurance operating income is comprised of under- 2003 by reporting unit were as follows:
writing profit (loss), net investment income and realized (in millions) 2005 2004 2003
capital gains and losses. These components, as well as net Insurance Net Insurance Insurance
premiums written, net premiums earned and statutory ratios Related Reinstatement Related Related
Reporting Unit Losses Premium Cost Losses Losses
for 2005, 2004 and 2003 were as follows:
DBG $ 1,747 $ 122 $ 582 $48
(in millions, except ratios) 2005 2004 2003 Transatlantic 463 45 215 4
Net premiums written: Personal Lines 112 2 25 5
Domestic General Mortgage Guaranty 10 – ––
DBG $23,128 $22,506 $19,563 Foreign General 293 94 232 26
Transatlantic 3,466 3,749 3,341 Total $ 2,625 $ 263 $1,054 $83
Personal Lines 4,653 4,354 3,732
(b) Includes $197 million of additional losses incurred resulting from
Mortgage Guaranty 628 607 531 increased labor and material costs related to the 2004 Florida
Foreign General 9,997 9,407 7,864 hurricanes.
Total $41,872 $40,623 $35,031 (c) The 2005 operating loss for DBG includes $291 million of expenses related
Net premiums earned: to changes in estimates for uncollectible reinsurance and other premium
Domestic General balances and $100 million of accrued expenses in connection with certain
DBG $22,602 $21,215 $16,704 workers compensation insurance policies written between 1985 and 1996.
Transatlantic 3,385 3,661 3,171 See Note 12(i) of Notes to Consolidated Financial Statements.
Personal Lines 4,634 4,291 3,678 (d) Includes the fourth quarter 2005 increase in net reserves of approxi-
Mortgage Guaranty 533 539 496 mately $1.8 billion.
Foreign General(f) 9,655 8,831 7,257 (e) Includes the results of wholly owned AIU agencies.
Total $40,809 $38,537 $31,306 (f) Income statement accounts expressed in non-functional currencies are
Underwriting profit translated into U.S. dollars using average exchange rates.
(loss)(a):
Domestic General General Insurance Results
DBG $ (3,250)(b)(c) $ (1,340) $ 387
Transatlantic (420) (47) 109 General Insurance operating income in 2005 decreased after
Personal Lines (19) 160 183 accounting for catastrophe related losses, the fourth quarter
Mortgage Guaranty 241 278 264 increase in reserves and changes in estimates related to
Foreign General(e)(f) 1,398 702 1,032
remediation of the material weakness in reconciliation of
Total $ (2,050)(d) $ (247) $ 1,975 balance sheet accounts. This decrease was partially offset by
Net investment income: strong profitable growth in Foreign General’s underwriting
Domestic General
results and DBG’s and Foreign General’s net investment
DBG $ 2,403 $ 1,965 $ 1,433
Transatlantic 343 307 271 income. DBG’s underwriting results also included additional
Personal Lines 217 186 152 losses incurred resulting from increased labor and material costs
Mortgage Guaranty 123 120 142 related to the 2004 Florida hurricanes. General Insurance
Intercompany operating income in 2004 showed positive results, even after
adjustments and
eliminations – net 1–7
accounting for catastrophe losses, the charge for asbestos and
Foreign General 944 618 561 environmental exposures and the $232 million charge reflect-
Total $ 4,031 $ 3,196 $ 2,566 ing a change in estimate for salvage and subrogation recoveries.
Net investment income and the capital gains realized in 2004
Realized capital gains
(losses) 334 228 (39) rather than the capital losses realized in 2003 also benefited
General Insurance results.
Operating income(a) $ 2,315(b)(c)(d) $ 3,177 $ 4,502
AIG m Form 10-K 31