AIG 2009 Annual Report Download - page 86

American International Group, Inc., and Subsidiaries
Foreign General Insurance net premiums written decreased in 2009 compared to 2008 primarily due to:
• sale of the Brazilian operations in 2008, which contributed 7.3 percent to the decline, primarily impacting A&H
products and Personal Lines businesses;
• negative effect of changes in foreign exchange rates, which contributed 3.5 percent to the decline;
• general economic conditions which continued to negatively affect new business; and
• adverse effect of negative publicity regarding AIG in 2009.
Net premiums written increased in 2008 compared to 2007 due to growth in commercial and consumer lines driven
by new business from established and new distribution channels, including the late 2007 acquisition of
W¨ urttembergische und Badische Versicherungs — AG (W¨ uBa) in Germany. New business in the commercial lines in
the U.K. and Europe and decreases in the use of reinsurance increased net premiums earned, but were partially offset
by declines in premium rates. Growth in personal accident business in Latin America, South East Asia and Europe
also contributed to the increase. However, premiums from the Lloyd’s Syndicate Ascot continued to decline.
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 Foreign General Insurance net premiums written:
Years Ended December 31, 2009 2008
Increase (decrease) in original currency* (11.1)% 4.6%
Foreign exchange effect (3.5) 5.7
Increase (decrease) as reported in U.S. dollars (14.6)% 10.3%
* Computed using a constant exchange rate for each period.
Foreign General Insurance Underwriting Ratios
The following table presents Foreign General Insurance combined ratios:
Years Ended December 31, 2009 2008 2007
Loss ratio 59.4 55.6 50.6
Expense ratio 40.8 36.9 35.1
Combined ratio 100.2 92.5 85.7
The increase in the Foreign General Insurance combined ratio for 2009 compared to 2008 primarily resulted from
the following:
• increase in the loss ratio of 3.3 points as a result of an increase in financial lines claims of $412 million arising
from the recent disruption in the financial markets as well as financial frauds;
• increases in current accident year loss ratio and severe losses were offset by a mild hurricane season, while 2008
was affected by natural catastrophes Hurricanes Gustav and Ike. For 2009, the current accident year combined
ratio was 100.2 compared to 93.0 in 2008; and
• an increase in the expense ratio in 2009 compared to 2008 due to increased separation costs, restructuring
charges, certain costs associated with bad debt-related expenses, pension costs, as well as in increase in unearned
premiums.
The loss ratio in 2008 increased compared to 2007. The loss ratio for accident year 2008 recorded in 2008 was 3.2
points higher than the loss ratio recorded in 2007 for accident year 2007 primarily due to continued rate erosion and
increased lower level claims frequency. Loss development on prior accident years increased the loss ratio by 1.9
points.
AIG 2009 Form 10-K 78