AIG 2014 Annual Report Download - page 98

ITEM 7 / RESULTS OF OPERATIONS / COMMERCIAL INSURANCE
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The general operating expense ratio decreased by 0.7 points in 2014 compared to 2013, primarily due to efficiencies from
organizational realignment initiatives, partially offset by higher technology-related expenses and an increase in bad debt
expense. In 2013, general operating expenses benefitted from an unusually low bad debt expense.
2013 and 2012 Comparison
The combined ratio decreased by 9.3 points in 2013 compared to 2012 primarily due to a decrease in the loss ratio.
The accident year combined ratio, as adjusted, improved by 4.2 points in 2013 compared to 2012, primarily due to a lower
accident year loss ratio, as adjusted.
The improvement in the accident year loss ratio, as adjusted, reflects the realization of benefits from the continued execution
of our strategy to enhance risk selection, pricing discipline, exposure management and claims processing. Although the
execution of these strategies resulted in a reduction of Casualty net premiums written in both the Americas and EMEA regions,
it also improved the accident year loss ratio, as adjusted. Severe losses represented approximately 2.8 points in 2013
compared to 1.4 points in 2012, and are included in the accident year loss ratio, as adjusted. In 2013, one single event,
totaling $131 million, accounted for approximately 0.6 points of the increase.
The acquisition ratio decreased by 0.5 points in 2013 compared to 2012, primarily due to a change in business mix and
reinsurance structures.
The general operating expense ratio decreased by 0.2 points in 2013, compared to 2012, primarily due to a reduction in bad
debt expense, which contributed approximately 0.8 points to the decrease, and lower strategic initiatives expenses, which
contributed approximately 0.6 points to the decrease. These decreases were partially offset by the increase in employee
incentive plan expense, which represented an approximately 1.0 point increase.
Mortgage Guaranty Results
The following table presents Mortgage Guaranty results:
Years Ended December 31, Percentage Change
(dollars in millions) 2014 2013 2012 2014 vs. 2013 2013 vs. 2012
Underwriting results:
Net premiums written $1,024 $ 1,048 $ 858 (2)% 22 %
Increase in unearned premiums (120) (239) (143) 50 (67)
Net premiums earned 904 809 715 12 13
Losses and loss adjustment expenses incurred 223 514 659 (57) (22)
Acquisition expenses:
Amortization of deferred policy acquisition costs 22 20 16 10 25
Other acquisition expenses 49 60 52 (18) 15
Total acquisition expenses 71 80 68 (11) 18
General operating expenses 156 142 125 10 14
Underwriting income (loss) 454 73 (137) NM NM
Net investment income 138 132 146 5 (10)
Pre-tax operating income 592 205 9 189 NM
Key metrics:
Prior year loss reserve development (favorable)/
unfavorable $(104) $ 30 $ (78) NM% NM%
Domestic first-lien:
New insurance written $42,038 $ 49,356 $ 37,273 (15) 32
Combined ratio 52.6 91.1 134.4
Risk in force $42,106 $ 36,367 $ 28,967 16 26
60+ day delinquency ratio on primary loans(a) 4.4 % 5.9 % 8.8 %
Domestic second-lien:
Risk in force(b) $446 $ 1,026 $ 1,261 (57) (19)