AIG 2010 Annual Report Download - page 95

American International Group, Inc., and Subsidiaries
Chartis Results
The following table presents Chartis’ results:
Percentage Increase/
(Decrease)
Years Ended December 31,
(in millions) 2010 2009 2008 2010 vs. 2009 2009 vs. 2008
Underwriting results:
Net premiums written $31,612 $30,653 $34,531 3% (11)%
Decrease in unearned premiums 909 1,608 979 (43) 64
Net premiums earned 32,521 32,261 35,510 1 (9)
Claims and claims adjustment expenses incurred 27,867 25,362 25,524 10 (1)
Underwriting expenses 10,114 9,497 10,757 6 (12)
Underwriting loss (5,460) (2,598) (771) - -
Investing and other results:
Net investment income 4,392 3,292 2,567 33 28
Net realized capital losses (49) (530) (4,284) - -
Gain on divested properties 669 -- - -
Bargain purchase gain 332 -- - -
Pre-tax income (loss) $ (116) $ 164 $ (2,488) -% -%
Chartis Net Premiums Written
As previously noted, AIG believes it should present and discuss its financial information in a manner most
meaningful to its financial statement users. AIG analyzes the operating performance of Chartis, using underwriting
profit. Underwriting profit is derived by reducing net premiums earned by claims and claims adjustment expenses
incurred and underwriting expenses. Net premiums written are initially deferred and earned based upon the terms
of the underlying policies for short duration contracts. The unearned premium reserve constitutes deferred
revenues which are generally recognized in earnings ratably over the policy period. Net premiums written for long
duration contracts are earned when due from the policyholder. Net premiums written reflect the premiums
retained after purchasing reinsurance protection.
AIG, along with most property and casualty insurance companies, uses the loss ratio, the expense ratio and the
combined ratio as measures of underwriting performance. The loss ratio is the sum of claims and claims
adjustment expenses divided by net premiums earned. The expense ratio is underwriting expenses, which consist of
acquisition costs plus other insurance expenses, divided by net premiums earned. The combined ratio is a sum of
loss ratio and expense ratio. These ratios are relative measurements that describe, for every $100 of net premiums
earned, the amount of claims and claims adjustment expenses, and other underwriting expenses that would be
incurred. A combined ratio of less than 100 indicates an underwriting profit and over 100 indicates an
underwriting loss.
The underwriting environment varies from country to country, as does the degree of litigation activity.
Regulation, product type and competition have a direct effect on pricing and consequently on profitability as
reflected in underwriting profit and the combined ratio.
AIG 2010 Form 10-K 79