AIG 2014 Annual Report Download - page 100

ITEM 7 / RESULTS OF OPERATIONS / COMMERCIAL INSURANCE
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2013 and 2012 Comparison
Pre-tax operating income increased in 2013 compared to 2012 due to an increase in net premiums earned and a decline in
incurred losses from lower delinquency rates and higher cure rates.
First Lien Results
First-lien pre-tax operating income increased in 2013 compared to 2012, primarily due to improved underwriting income as
a result of a $157 million decrease in first-lien losses and loss adjustment expenses incurred reflecting lower newly reported
delinquencies and higher cure rates and a $127 million increase in first-lien net premiums earned largely from growth in the
book of business in 2013. This increase was partially offset by $46 million of unfavorable prior year development in 2013
compared to unfavorable prior year development of $17 million in 2012. The decline in first-lien losses and loss adjustment
expenses incurred combined with the increase in earned premiums resulted in an improved combined ratio of 91.1 points in
2013 compared to 134.4 points in 2012.
Acquisition expenses increased in 2013 compared to 2012, primarily as a result of the increase in new insurance written
related to the increase in mortgage originations resulting from the addition and expansion in distribution channels.
General operating expenses increased in 2013 compared to 2012 due to increased servicing costs related to the growth in
the in-force business.
Other Business Results
Other business results include second-lien insurance, student loan insurance and non-domestic mortgage insurance
operations.
The Other business’ pre-tax operating income for 2013 was $27 million, $56 million lower than 2012. The decline in pre-tax
operating income was primarily due to a decline in net premiums earned of $32 million and an increase in losses and loss
adjustment expenses incurred of $12 million, and a $2 million increase in underwriting expenses.
New Insurance Written
The decline in domestic first-lien new insurance written to $42.0 billion in 2014 from $49.4 billion in 2013 was primarily due to
the contraction in the mortgage originations market and an increase in competition.
New insurance written increased to $49.4 billion in 2013 from $37.3 billion in 2012 due to the increase in mortgage
originations.
Delinquency Inventory
The delinquency inventory for domestic first lien business declined during 2014 as a result of cures and paid claims exceeding
the number of newly reported delinquencies. Mortgage Guaranty’s first lien primary delinquency ratio at December 31, 2014
was 4.4 percent compared to 5.9 percent at December 31, 2013. Over the last several quarters, Mortgage Guaranty has
experienced a decline in newly reported defaults and an increase in cure rates.
The delinquency inventory for domestic first lien business declined during 2013 as a result of higher cure rates and fewer
newly reported delinquencies. Mortgage Guaranty’s first lien primary delinquency ratio at December 31, 2013 was 5.9 percent
compared to 8.8 percent at December 31, 2012.