AIG 2015 Annual Report Download - page 101

ITEM 7 / RESULTS OF OPERATIONS / CONSUMER INSURANCE
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LIFE PRE-TAX OPERATING INCOME (in millions)
2015 and 2014 Comparison
Pre-tax operating income decreased in 2015 compared to 2014, primarily due to lower net investment income, mortality
experience that was within pricing expectations but less favorable than the prior year, and a higher net negative adjustment to
reflect updated actuarial assumptions. These decreases were partially offset by a $20 million reduction in the reserve for IBNR
death claims related to enhanced claims practices, due to updated estimates in 2015, compared to a $104 million increase in
this reserve in 2014, which was primarily related to a legacy block of small policies for which personal data elements were
unavailable or incomplete.
Other income in 2015 was primarily related to commission and profit sharing revenues received by Laya Healthcare for the
distribution of insurance products. Laya Healthcare, which we acquired on March 31, 2015, is Ireland’s second largest primary
health insurance provider. Laya Healthcare distributes and administers primary healthcare for approximately 550,000
customers, and also offers other coverage including life, dental and travel insurance.
The net negative adjustment of $146 million related to an update of actuarial assumptions in 2015 was primarily due to lower
assumed surrender rates for certain later-duration universal life with secondary guarantees, which represent approximately
eight percent of the Life Insurance Companies’ total U.S. life reserves. The net negative adjustment also reflected lower
investment spread assumptions, partially offset by more favorable than expected assumptions for mortality, as well as loss
recognition expense of $28 million for certain discontinued long-term care products primarily due to lower future premium
assumptions. These negative adjustments were partially offset by a decrease in certain Group Benefit claim reserves based on
updated experience data. See Insurance Reserves - Life Insurance Companies DAC and Reserves – Update of Actuarial
Assumptions for amounts by financial statement line item and additional discussion of loss recognition.
Net investment income for 2015 decreased compared to 2014, primarily due to lower returns on alternative investments in
hedge funds and, to a lesser extent, a decrease due to lower yields on the base portfolio. See Investments – Life Insurance
Companies for additional discussion of the investment strategy, asset-liability management process and invested assets of our
Life Insurance Companies, which include the invested assets of the Life business.
General operating expenses increased in 2015 compared to 2014, primarily related to the expansion of the international Life
business through the acquisitions of AIG Life Limited and Laya Healthcare. Higher expenses from the international acquisitions
were partially offset by domestic savings from organizational changes.