AIG 2009 Annual Report Download - page 82

American International Group, Inc., and Subsidiaries
AIG transacts business in most major foreign currencies. The following table summarizes the effect of changes in
foreign currency exchange rates on the growth of General Insurance net premiums written:
Years Ended December 31, 2009 2008
Decrease in original currency* (12.5)% (6.0)%
Foreign exchange effect (1.4) 2.0
Increase (decrease) as reported in U.S. dollars (13.9)% (4.0)%
* Computed using a constant exchange rate for each period.
General Insurance Underwriting Ratios
The following table summarizes General Insurance GAAP combined ratios:
Years Ended December 31, 2009 2008 2007
Loss ratio 78.6 71.5 62.1
Expense ratio 29.4 30.4 23.8
Combined ratio 108.0 101.9 85.9
The increase in the General Insurance combined ratio for 2009 compared to 2008 primarily resulted from the
following:
• prior year development increased incurred losses by $2.8 billion in 2009 and decreased incurred losses by
$39 million in 2008. The 2009 prior year development includes a fourth quarter reserve strengthening charge of
$2.3 billion in Commercial Insurance primarily related to excess casualty and excess workers’ compensation, two
long-tail lines of business, largely from accident years 2002 and prior;
• lower levels of favorable development related to loss sensitive policies for Commercial Insurance which
amounted to $118 million in 2009 compared to $339 million in 2008. This favorable development is reflected in
overall development amounts above and relates to loss sensitive policies that have no material effect on
underwriting profit as the amounts are substantially offset by a decline in earned premiums; and
• effects of premium rate decreases and changes in loss trends.
These increases were partially offset by the following:
• a loss ratio for accident year 2009 recorded in 2009 which was 1.5 points lower than the loss ratio for accident
year 2008, resulting from a decline in catastrophe losses from $1.6 billion in 2008 to $53 million in 2009,
accounting for 4.3 points of the decrease in the accident year loss ratio. This decrease in accident year loss ratio
was partially offset by a $412 million increase in current year loss activity from the recent disruption in the
financial markets as well as financial frauds claims in Foreign General Insurance. In 2009, the current accident
year combined ratio was 99.2; and
• decline in the expense ratio of 0.9 points in 2009 compared to 2008 due primarily to a $1.2 billion impairment
charge for goodwill remaining from the acquisition of HSB.
The General Insurance combined ratio for 2008 increased compared to 2007, primarily due to an increase in the
loss ratio. The loss ratio for accident year 2008 recorded in 2008 was 7.4 points higher than the loss ratio for accident
year 2007 recorded in 2007. Catastrophe-related losses were $1.6 billion and $266 million in 2008 and 2007,
respectively, accounting for 4.2 points of the increase in the accident year loss ratio. The loss ratio also increased for
other property and casualty lines due to premium rate decreases and changes in loss trends. Development from prior
years decreased incurred losses by $39 million in 2008 and decreased incurred losses by $657 million in 2007. The
expense ratio for 2008 increased 3.3 points due to $1.2 billion of goodwill impairment charges primarily related to
HSB.
AIG 2009 Form 10-K 74