AIG 2013 Annual Report Download - page 128

The increase in pre-tax operating income in 2013 compared to the prior year also reflected additional expenses
recorded in 2012, which included $67 million of additional reserves for long-term care products and $57 million
related to the resolution of multi-state regulatory examinations of death claims practices, and higher general operating
expenses related to incentive compensation plans.
Pre-tax operating income for our Institutional operating segment increased in 2013 compared to 2012, due in part to
higher fee income in the Group Retirement product line, which benefited from growth in separate account assets
under management driven by favorable equity market performance. In addition, we continued active spread
management in our interest rate sensitive product lines, which included lowering renewal crediting rates and
disciplined new business pricing in our Group Retirement product line. Pre-tax operating income for the Institutional
operating segment in 2013 was reduced by $45 million of net unfavorable adjustments primarily to update estimated
gross profit assumptions for annuity spreads, partially offset by an increase in the assumption for separate account
asset long-term growth rates in the Group Retirement product line. See Critical Accounting Estimates — Estimated
Gross Profits for Investment-Oriented Products (AIG Life and Retirement) for additional discussion of estimated gross
profit assumptions. The increase in pre-tax operating income compared to 2012 also reflected $110 million of
expenses recorded in 2012 resulting from a comprehensive review of reserves for the GIC portfolio.
Pre-tax operating income increased in 2012 compared to 2011, reflecting active spread management in interest rate
sensitive product lines and higher net investment income. The increase in net investment income compared to 2011
included reinvestment of significant amounts of cash and short-term investments, higher fair value gains from ML II
and PICC Group, lower impairment charges on investments in leased commercial aircraft and higher income from
alternative investments. Benefit expense and DAC amortization expense for variable annuity products were lower in
2012 compared to 2011, primarily due to the favorable impact of separate account performance, which more than
offset higher life insurance mortality costs. Pre-tax operating income also increased due to lower expenses in 2012
compared to 2011 related to the resolution of multi-state regulatory examinations of death claims practices in the
Retail operating segment. Offsetting these increases in Pre-tax operating income were additional reserves for the
GIC portfolio in 2012, and a decrease due to legal settlement proceeds of $226 million received in resolution of a
litigation matter and included in Other income in 2011.
Pre-tax operating income for our Retail operating segment increased in 2012 compared to 2011, reflecting active
spread management in interest rate sensitive product lines and higher net investment income. The increase in net
investment income included reinvestment of significant amounts of cash and short-term investments, higher fair value
gains from ML II and PICC Group, lower impairment charges on investments in leased commercial aircraft and
higher income from alternative investments. Benefit expense and DAC amortization expense related to variable
annuity products in the Retirement Income Solutions product line were lower in 2012 than 2011, primarily due to the
favorable impact of separate account performance, which more than offset higher mortality costs in the Life
Insurance and A&H product line. Pre-tax operating income also increased due to lower expenses of $57 million in
2012 compared to $202 million in 2011 related to the resolution of multi-state regulatory examinations of death
claims practices. Offsetting these positive variances was a decrease due to legal settlement proceeds included in
Other income in 2011.
Pre-tax operating income for our Institutional operating segment increased in 2012 compared to 2011 due to active
spread management in our Group Retirement product line, which included lowering renewal crediting rates and
disciplined new business pricing. Net investment income increased in 2012 compared to 2011 due to reinvestment of
significant amounts of cash and short-term investments, higher fair value gains from ML II and PICC Group, lower
impairment charges on investments in leased commercial aircraft and higher income from alternative investments.
Offsetting these positive variances were decreases in pre-tax operating income compared to 2011 from legal
Institutional Results
2012 and 2011 Comparison
AIG Life and Retirement Results
Retail Results
Institutional Results
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AIG 2013 Form 10-K110
ITEM 7 / RESULTS OF OPERATIONS / AIG LIFE AND RETIREMENT
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