AIG 2012 Annual Report Download - page 129

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In December of 2012, we recorded litigation settlement income from settlements with three financial institutions who
participated in the creation, offering and sale of RMBS as to which AIG and its subsidiaries suffered losses either
directly on their own account or in connection with their participation in AIG’s securities lending program.
Mortgage Guaranty
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The following table presents pre-tax income for Mortgage Guaranty:
Underwriting results:
Net premiums written $ 801 $ 756 7% 6%
(Increase) decrease in unearned premiums (9) 219 NM NM
Net premiums earned 792 975 (10) (19)
Claims and claims adjustment expenses incurred 834 500 (21) 67
Underwriting expenses 187 271 3 (31)
Underwriting profit (loss) (229) 204 40 NM
Net investment income 132 149 11 (11)
Operating income (loss) (97) 353 NM NM
Net realized capital gains 20 44 (70) (55)
Pre-tax income (loss) $ (77) $ 397 NM% NM%
2012 and 2011 Comparison
Mortgage Guaranty recorded operating income in 2012 compared to an operating loss in 2011 primarily due to:
• a decrease in claims and claims adjustment expenses of $175 million. This reflects decreases in first and
second-lien businesses of $95 million and $110 million, respectively, which were partially offset by an increase in
international claims and claims adjustment expenses of $34 million. Claims and claims adjustment expenses in
2012 included favorable prior year loss development of $78 million, which consists of $45 million in second liens,
$17 million in student loans and $33 million in the international business partially offset by unfavorable
development in first liens of $17 million. This favorable prior year development was offset by current accident year
losses attributable to business written in 2008 and prior;
• the $95 million decrease in first-lien claims and claims adjustment expenses reflected 20 percent lower levels of
newly reported delinquencies, an improvement in the cure rate and lower unfavorable loss development of
$17 million in 2012 compared to $76 million of unfavorable development in 2011. The unfavorable development of
$17 million in 2012, included $117 million of favorable development arising from the claims requests sent to
lenders mentioned above, offset by $134 million of unfavorable development on delinquencies for which claim
requests were not made;
• the $110 million decline in second-lien business claims and claims adjustment expenses. This reflected a decrease
in claims and claims adjustment expenses paid as more business reached the respective stop loss limits; and
• the increased claims and claims adjustment expenses in the international business. This reflected a reduction in
claim reserves in 2011 due to a settlement of certain delinquencies with a major European lender that resulted in a
$43 million benefit.
These items were partially offset by:
• a decline in first-lien earned premiums of $19 million reflecting higher premium refunds due to the rescissions
arising from the claims requests sent to lenders during the fourth quarter of 2011 and continuing throughout 2012,
as discussed in Outlook herein, in addition to the declining persistency on the 2008 and prior policy years;
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AIG 2012 Form 10-K112
Percentage Change
Years Ended December 31,
(in millions) 2012 2011 2010 2012 vs. 2011 2011 vs. 2010
$ 858
(143)
715
659
193
(137)
146
9
6
$15
ITEM 7 / RESULTS OF OPERATIONS