AIG 2010 Annual Report Download - page 100

American International Group, Inc., and Subsidiaries
adversely impacted general liability and commercial umbrella business in the Commercial Casualty and
environmental classes in the Commercial Specialty lines of business. Additionally, 2010 reflects the effects of
the Chartis U.S decision to reduce writings within its Commercial Specialty lines for certain classes of
environmental coverages.
Partially offsetting these declines are increases in its Consumer lines of business as part of the Chartis U.S.
strategy to increase production in less capital intensive and higher margin businesses.
Chartis U.S. net premiums written decreased in 2009 compared to 2008 primarily due to:
• declines in the Commercial Casualty lines of business due to lower U.S. workers’ compensation premiums
resulting from declining rates, lower employment levels, increased competition and a strategy to remain price
disciplined;
• declines in the construction, real estate and transportation lines within Commercial Casualty lines, and
various classes of professional liability business within the Specialty lines, which were negatively affected to a
greater extent than other classes by the credit crisis. Additionally, the limited availability of capital for new
projects adversely impacted the general liability and commercial umbrella businesses in its Commercial
Casualty and environmental lines within the Specialty lines of business; and
• the effect of AIG’s negative publicity in 2009, which adversely impacted all classes of both commercial and
consumer business.
Chartis U.S. Underwriting Ratios
The following table presents Chartis U.S. GAAP combined ratios:
Increase Increase
Years Ended December 31, 2010 2009 (Decrease) 2008 (Decrease)
Loss ratio 101.6 90.7 10.9 81.4 9.3
Expense ratio 25.6 22.3 3.3 26.3 (4.0)
Combined ratio 127.2 113.0 14.2 107.7 5.3
The increase in the Chartis U.S. combined ratio in 2010 compared to 2009 primarily resulted from the
following:
• a loss ratio for accident year 2010 recorded in 2010 which was 3.2 points higher than the loss ratio for
accident year 2009 recorded in 2009. The increase in the overall accident year loss ratio is due to
approximately $557 million catastrophe-related losses in 2010 previously noted (compared to $53 million of
catastrophe-related losses in 2009).
• net adverse prior year development, which increased Chartis U.S. incurred losses by $3.9 billion in 2010
compared to $2.8 billion of net adverse loss development in 2009.
The following table presents the components of net prior year adverse development for Chartis U.S.:
Years Ended December 31,
(in millions) 2010 2009 2008
Gross prior year adverse loss development $4,471 $2,749 $ 23
Increase in loss reserve discount (515) (81) (145)
Returned/(additional) premium on loss-sensitive business (8) 118 339
Net prior year adverse loss development $3,948 $2,786 $ 217
For additional discussion regarding net prior year loss development, refer to the Liability for Unpaid Claims
and Claims Adjustment Expense section that follows.
84 AIG 2010 Form 10-K