AIG 2013 Annual Report Download - page 97

AIG Property Casualty presents its financial information in two operating segments — Commercial Insurance and
Consumer Insurance — as well as an Other category.
We are developing new value-based metrics that provide management with enhanced measures to evaluate our
profitability, such as a risk-adjusted profitability model. Along with underwriting results, this risk-adjusted profitability
model incorporates elements of capital allocations, costs of capital and net investment income. We believe that such
performance measures will allow us to better assess the true economic returns of our business.
Pre-tax Operating Income increased in 2013, compared to the prior year, due to lower catastrophe losses,
improvements in underwriting results and strong investment performance. AIG Property Casualty continued to shift its
mix of business to higher value products and regions, while benefiting from positive rate trends.
Net premiums written decreased slightly in 2013, compared to the prior year, due to the effect of foreign exchange
as a result of the strengthening of the U.S. dollar against the Japanese yen, which primarily impacted the Consumer
Insurance businesses. This decrease was largely offset by an increase in the Commercial Insurance net premiums
written due to rate increases, improved retention, growth in new business and changes in our reinsurance program.
Excluding the effect of foreign exchange, net premiums written increased by approximately 4 percent compared to
the prior year.
The loss ratio improved by 7.2 points in 2013, compared to the prior year, primarily due to positive pricing,
continued improvement from our change in business mix and lower catastrophe losses. These improvements were
partially offset by an increase in severe losses and adverse prior year development, which added 0.8 points and 0.1
point to the loss ratio, respectively, compared to the prior year. Additionally, an increase in discount for certain
workers’ compensation reserves improved the loss ratio by 1.0 points compared to the prior year.
The acquisition ratio decreased by 0.2 points in 2013, compared to the prior year. Decreases in the Commercial
Insurance acquisition ratio, related to changes in business mix and reinsurance structures, partially offset by
increased commission rates in Consumer Insurance, driven by increases in growth targeted lines of business.
The general operating expense ratio increased by 0.2 points in 2013, compared to the prior year. An increase in
the cost of our employee incentive plans was partially offset by the decrease in bad debt expense and reduced costs
for strategic initiatives. In addition, for 2013, the lower net premiums earned base contributed to the increase,
primarily due to the fixed expense base that generally does not vary with production.
Net investment income increased by 10 percent in 2013, compared to the prior year, primarily due to increases in
alternative investment returns and income associated with the PICC P&C shares that are accounted for under the fair
value option.
We provided $4.3 billion of dividends to AIG Parent during the year ended December 31, 2013, including non-cash
dividends of $222 million (including dividends of $1.8 billion related to restructuring activities).
AIG PROPERTY CASUALTY
AIG Property Casualty 2013 Highlights
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AIG 2013 Form 10-K 79
ITEM 7 / RESULTS OF OPERATIONS / AIG PROPERTY CASUALTY
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