AIG 2015 Annual Report Download - page 111

ITEM 7 / RESULTS OF OPERATIONS / CORPORATE AND OTHER

111
Direct Investment book -1,241 1,448 NM (14)
Global Capital Markets -359 625 NM (43)
Run-off insurance Lines (488) (445) 403 (10) NM
Consolidation and eliminations 21 1 4 NM (75)
Total Corporate and Other pre-tax operating loss $(883) $(379) $(265)
(133)% (43)%
(a) Represents our share of AerCap’s pre-tax operating income, which excludes 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.
(b) During the first quarter of 2015, Non-Life Insurance Companies sold a portion of their investment in PICC P&C to AIG Parent. During 2014, the Life
Insurance Companies sold their investment in PICC Group to AIG Parent.
(c) Consists of the results of investments held by AIG Parent to support various corporate needs as well as the remaining positions of AIGFP, life settlements,
real estate, equipment leasing and lending and other secured lending investments held by AIG Parent and certain subsidiaries. As a result of the progress of the
wind down and de-risking activities of the DIB and the derivative portfolio of AIGFP included within GCM, AIG has discontinued separate reporting of the DIB and
GCM. Their results have been reported within Income from other assets, net, beginning with the first quarter of 2015. This reporting aligns with the manner in
which AIG manages its financial resources. Prior periods are presented in historical format for informational purposes. Interest expense for 2015 includes $70
million of interest expense previously reported in DIB results.
(d) Includes $263 million of severance expense attributable to the Property Casualty and Personal Insurance operating segments.
Corporate and Other Results
2015 and 2014 Comparison
Corporate and Other pre-tax operating losses increased in 2015 compared to 2014 primarily due to lower fair value
appreciation on ABS CDOs, lower credit valuation adjustments on assets for which the fair value option was elected, and lower
mark-to-market income on CDS positions as a result of portfolio wind down and more significant spread tightening in 2014, all
of which are reflected in Income from other assets, net. Partially offsetting these declines were lower corporate general
operating expenses resulting from a pension curtailment credit and lower interest expense from ongoing liability management
activities.
Run-off insurance lines reported an increase in pre-tax operating loss in 2015 primarily due to higher net adverse prior year
loss reserve development reflecting the loss reserve strengthening in classes of business with long reporting tails and transfers
of certain casualty lines, including environmental liability and healthcare coverage that were no longer offered by Commercial
Insurance to Run-off insurance lines. See Insurance Reserves – Non-Life Insurance Companies – Net Loss Development for
further discussion. These increases in net adverse prior year loss reserve development were partially offset by excess workers’
compensation net loss reserve discount benefit, primarily reflecting an increase in Treasury rates in 2015. See Insurance
Reserves – Non-Life Insurance Companies – Discounting of Reserves for further discussion.
2014 and 2013 Comparison
Corporate and Other pre-tax operating losses increased in 2014 compared to 2013 primarily due to an increase in general
operating expenses as a result of centralizing processes to lower-cost locations and increased costs related to investments in
technology, lower fair value appreciation on ABS CDOs driven primarily by improved collateral pricing due to more significant
improvements in home price indices and amortization of the underlying collateral in 2013, lower credit valuation adjustments
on assets for which the fair value option was elected, and lower mark-to-market income on CDS positions as a result of
portfolio wind down and spread widening, partially offset by our share of AerCap’s pre-tax operating income, which was
accounted for under the equity method, and lower interest expense from ongoing debt management activities described in
Liquidity and Capital Resources.
Run-off insurance lines reported a pre-tax operating loss of $445 million in 2014 compared to income of $403 million in 2013,
primarily as a result of a $407 million charge from a decrease in reserve discount in 2014 compared to a $631 million benefit
from an increase in discount in 2013. This discounting-related charge was partially offset by a $98 million decrease in net
adverse prior year loss reserve development and an improvement in current accident year loss experience, particularly in the
environmental liability business (2004 and prior). The discount charge was primarily due to the decline in risk free rates during