AIG 2012 Annual Report Download - page 130

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• a decline in earned premiums on second-lien and international businesses, both of which were placed into run-off
during 2008, of $41 million and $24 million respectively; and
• a $10 million increase in underwriting expenses driven primarily by an increase in underwriting, sales and product
initiatives, all of which supported the increase in new insurance written for the year.
New insurance written, which represents the original principal balance of the insured mortgages, was approximately
$37 billion and $19 billion in 2012 and 2011, respectively. The increase in new insurance written is the result of the
market acceptance by lenders of UGC’s risk-based pricing model and withdrawal of certain competitors from the
market during 2011. See Outlook – Other Operations – Mortgage Guaranty for further discussion.
Risk-in-Force
The following table presents risk-in-force and delinquency ratio information for Mortgage Guaranty domestic
business:
Domestic first-lien:
Risk in force $25.6
60+ day delinquency ratio on primary loans(a) 13.9%
Domestic second-lien:
Risk in force(b) $ 1.5
(a) Based on number of policies.
(b) Represents the full amount of second-lien loans insured reduced for contractual aggregate loss limits on certain pools of loans, usually
10 percent of the full amount of loans insured in each pool. Certain second-lien pools have reinstatement provisions, which will expire as the loan
balances are repaid.
2011 and 2010 Comparison
Mortgage Guaranty recorded an operating loss in 2011 compared to operating income in 2010, primarily due to:
• an increase in claims and claims adjustment expenses of $334 million, primarily in first-lien business. This reflected
increased overturns of denied and rescinded claims and unfavorable first-lien loss development of $76 million in
2011, compared to favorable loss development of $385 million in 2010. These factors were partially offset by lower
levels of newly reported delinquencies in the first-lien, second-lien and international products, and a reduction in
reserves due to an agreement to resolve certain delinquencies with a major European lender that resulted in a
$43 million benefit;
• declines in earned premiums from the second-lien, private student loan and international businesses, which were
placed into runoff during 2008, partially offset by an increase in earned premiums from first-lien business; and
• the accrual of $22 million to pay for previously rescinded losses, certain legal fees and interest in connection with
an adverse judgment. Mortgage Guaranty has appealed the court’s decision.
Partially offsetting these declines was a reduction in underwriting expenses compared to 2010 reflecting a $94 million
accrual of estimated remedy losses in 2010. Remedy losses represent the indemnification for losses incurred by
lenders arising from obligations contractually assumed by Mortgage Guaranty as a result of underwriting services
provided to lenders during times of high loan origination activity. Mortgage Guaranty believes it has adequately
accrued for these losses at December 31, 2011. Pre-tax income for 2010 also includes gains of approximately
$150 million from legal settlements and reinsurance commutations.
Global Capital Markets Operations
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2012 and 2011 Comparison
GCM reported operating income in 2012 compared to an operating loss in 2011 primarily due to improvement in
unrealized market valuations related to the super senior credit default swap (CDS) portfolio, a decrease in operating
expenses and lower costs related to the wind-down of AIGFP’s businesses and portfolios. For 2012 and 2011,
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AIG 2012 Form 10-K 113
At December 31,
(dollars in billions) 2012 2011
$29.0
8.9%
$ 1.3
ITEM 7 / RESULTS OF OPERATIONS