AIG 2014 Annual Report Download - page 99

ITEM 7 / RESULTS OF OPERATIONS / COMMERCIAL INSURANCE
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82
(a) Based on number of policies.
(b) Represents the full amount of second-lien loans insured reduced for contractual aggregate loss limits on certain pools of loans, which is usually 10 percent of
the full amount of loans insured in each pool. Certain second-lien pools have reinstatement provisions, which will expire as the loan balances are repaid.
PRE-TAX OPERATING INCOME
(in millions)
DOMESTIC FIRST-LIEN NEW INSURANCE WRITTEN
(in millions)
2014 and 2013 Comparison
Pre-tax operating income increased in 2014 compared to 2013 due to a decline in incurred losses from lower delinquency
rates, higher cure rates and an increase in first-lien net premiums earned reflecting higher persistency.
First Lien Results
First-lien pre-tax operating income increased in 2014 compared to 2013, primarily due to improved underwriting income as
a result of a $229 million decrease in first-lien losses and loss adjustment expenses incurred reflecting fewer new
delinquencies, favorable prior year loss reserve development, and higher cure rates. In addition, first-lien pre-tax operating
income increased due to a $119 million increase in first-lien net premiums earned in 2014 compared to 2013, largely from
growth in the book of business, higher persistency, and, to a lesser extent, the acceleration of premiums earned as the result
of the recognition of a shorter expected coverage period on certain single premium business. The decrease in first-lien losses
and loss adjustment expenses incurred combined with the increase in earned premiums resulted in an improved combined
ratio of 52.6 points in 2014 compared to 91.1 points in 2013.
Acquisition expenses decreased in 2014 compared to 2013, primarily as a result of the decrease in new insurance written
related to the decline in mortgage originations.
General operating expenses increased in 2014 compared to 2013 due to increased technology expenses and an impairment
charge on certain capitalized technology costs.
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 2014 was $82 million compared to $27 million in 2013. The increase in
pre-tax operating income is due to a decline in losses and loss adjustment expenses incurred of $62 million and a $17 million
reduction in underwriting expenses, partially offset by a decline in net premiums earned of $22 million and a decline in net
investment income of $2 million.