AIG 2010 Annual Report Download - page 137

American International Group, Inc., and Subsidiaries
Consolidated Results — Interest Expense herein for further discussion of the decline in interest expense.
Additionally, Parent & Other pre-tax loss in 2009 includes a decline in fair value of AIG’s equity interest in ML
III, restructuring expenses, and net losses on sales of divested businesses.
The following table summarizes the net gain (loss) on sale of divested businesses:
Gain/(Loss)
Years Ended December 31,
(in millions) 2010 2009
AIA* $16,577 $-
Consumer Finance businesses (56) (375)
AIG Capital India (40) -
A.I. Credit (33) (287)
AIG Private Bank -111
AIG Life Canada -111
Transatlantic -(497)
21st Century -(416)
HSB -177
Other businesses 18 (95)
Total $16,466 $(1,271)
* During the second quarter of 2010, AIG and Prudential plc terminated the AIA purchase agreement they had entered in March 2010 and in
accordance with the terms of the purchase agreement, Prudential plc paid AIG a termination fee of $228 million, which is included in this amount.
Other Businesses
Mortgage Guaranty
The main business of the subsidiaries of UGC is the issuance of residential mortgage guaranty insurance, both
domestically and internationally, that covers mortgage lenders for the first loss for credit defaults on high
loan-to-value conventional first-lien mortgages for the purchase or refinance of one- to four-family residences.
2010 and 2009 Comparison
Mortgage Guaranty reported pre-tax income in 2010, driven by favorable prior year reserve development due to
increased cures, rescissions and claims denials, compared to a pre-tax loss in 2009. This improvement reflected a
decline in claims and claims adjustment expenses incurred of $2.4 billion, offset in part by lower earned premiums
in 2010 and by an amortization of the second-lien premium deficiency reserve of $222 million in the first quarter
of 2009. Domestic first-lien, second-lien and international businesses reported pre-tax income of $198 million,
$58 million and $86 million, respectively, for 2010 which was $1.3 billion, $341 million and $347 million higher,
respectively, than 2009. The improvement in pre-tax income reflects the decline in claims and claims adjustment
expenses of $1.4 billion for first liens, $607 million for second liens and $394 million for international markets.
The lower claims and claims adjustment expenses include favorable prior year development of $668 million for
2010 compared to unfavorable prior year development of $38 million for 2009. The improved pre-tax results
correspond to lower levels of newly reported delinquencies in the first-lien, second-lien and international products,
higher mortgage cure rates on existing first-lien and international delinquent loans, higher rescission rates on
first-lien claims and the recognition of stop loss limits on certain second-lien policies, partially offset by increased
delinquencies in private student loans. During 2010, UGC commuted the majority of its private student loan
portfolio.
UGC continues to deny claims and rescind coverage on loans (collectively referred to as rescissions) due to
fraudulent or undocumented claims, underwriting guideline violations and other deviations from contractual terms,
mostly related to the 2006 and 2007 vintage books of business. These policy violations have resulted in loan
rescissions totaling $694 million of claims on first-lien business during 2010 compared to $263 million during 2009.
Although rescissions will continue to affect UGC’s financial results, lenders and mortgage servicers have added
AIG 2010 Form 10-K 121