AIG 2014 Annual Report Download - page 72

ITEM 7 / USE OF NON-GAAP MEASURES
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We use the following operating performance measures within our Commercial Insurance and Consumer Insurance reportable
segments as well as Corporate and Other.
• Commercial Insurance: Property Casualty and Mortgage Guaranty; Consumer Insurance: Personal Insurance
 Pre-tax operating income: includes both underwriting income and loss and net investment income, but excludes net
realized capital gains and losses, other income and expense — net and legal settlements related to legacy crisis matters
described above. Underwriting income and loss is derived by reducing net premiums earned by losses and loss
adjustment expenses incurred, acquisition expenses and general operating expenses.
 Ratios: We, along with most property and casualty insurance companies, use the loss ratio, the expense ratio and the
combined ratio as measures of underwriting performance. These ratios are relative measurements that describe, for
every $100 of net premiums earned, the amount of losses and loss adjustment expenses, and the amount of other
underwriting expenses that would be incurred. A combined ratio of less than 100 indicates underwriting income and a
combined ratio of over 100 indicates an underwriting loss. The underwriting environment varies across countries and
products, as does the degree of litigation activity, all of which affect such ratios. In addition, investment returns, local
taxes, cost of capital, regulation, product type and competition can have an effect on pricing and consequently on
profitability as reflected in underwriting income and associated ratios.
 Accident year loss and combined ratios, as adjusted: both the accident year loss and combined ratios, as adjusted,
exclude catastrophe losses and related reinstatement premiums, prior year development, net of premium adjustments,
and the impact of reserve discounting. Catastrophe losses are generally weather or seismic events having a net impact
in excess of $10 million each.
 Commercial Insurance: Institutional Markets; Consumer Insurance: Retirement and Life
 Pre-tax operating income is derived by excluding the following items from pre-tax income:
• changes in fair values of fixed maturity securities
designated to hedge living benefit liabilities (net of
interest expense);
• changes in benefit reserves and DAC, VOBA and SIA
related to net realized capital gains and losses; and
• net realized capital gains and losses; • legal settlements related to legacy crisis matters
described above.
 Premiums and deposits: includes direct and assumed amounts received and earned on traditional life insurance
policies, group benefit policies and life-contingent payout annuities, as well as deposits received on universal life,
investment-type annuity contracts and mutual funds.
 Corporate and Other — Pre-tax operating income and loss is derived by excluding the following items from pre-tax
income and loss:
• loss on extinguishment of debt;
• net realized capital gains and losses;
• changes in benefit reserves and DAC, VOBA and SIA
related to net realized capital gains and losses;
• income and loss from divested businesses, including
Aircraft Leasing;
• net gain or loss on sale of divested businesses,
including:
 gain on the sale of ILFC; and
 certain post-acquisition transaction expenses incurred
by AerCap in connection with its acquisition of ILFC
and the difference between expensing AerCap’s
maintenance rights assets over the remaining lease
term as compared to the remaining economic life of
the related aircraft and our share of AerCap’s income
taxes; and
• certain legal reserves (settlements) related to legacy
crisis matters described above.
Results from discontinued operations are excluded from all of these measures.