AIG 2015 Annual Report Download - page 67

ITEM 7 / EXECUTIVE OVERVIEW
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COMMERCIAL INSURANCE OUTLOOK AND STRATEGIC INITIATIVES
Market Conditions and Industry Trends
Commercial Insurance expects the current low interest rate environment relative to historical levels, currency volatility, and
ongoing uncertainty in global economic conditions will continue to limit growth and profitability in some markets and challenge
growth of net investment income. Due to these conditions and overcapacity in the property casualty insurance industry,
Commercial Insurance has continued to diversify its business focusing on growing profitable segments and geographies,
exiting unprofitable lines and developing advanced data and analytics to improve profitability.
Property Casualty
Property Casualty has observed improving trends in certain key indicators that may partially offset the effect of current
economic challenges. In 2015, the property casualty insurance industry experienced modest growth and an increase in overall
exposures in certain markets, although this growth may be leveling off. Property Casualty also expects that expansion in
certain growth economies will continue at a faster pace than in developed countries, but at levels lower than those previously
expected due to revised economic assumptions. As a result of its ongoing strategy to optimize its portfolio and maintain
underwriting discipline, Property Casualty expects that net premiums written for the U.S. Casualty line will continue to decline
through 2016.
Overall, Property Casualty experienced a modest increase in rate pressure in 2015 compared to 2014. Property Casualty
expects that trend to continue in the near term, particularly in certain lines including in the U.S. Property Excess and Surplus
market. Property Casualty continues to differentiate its underwriting capacity from its peers by leveraging its global footprint,
diverse product offering, risk engineering expertise and significant underwriting experience.
In the U.S., Property Casualty’s exposure to terrorism risk is mitigated by TRIPRA in addition to limited private reinsurance
protections. For additional information on TRIPRA, see Item 1A. Risk Factors — Reserves and Exposures and Item 7.
MD&A — Enterprise Risk Management — Insurance Operations Risks — Non-Life Insurance Companies Key Insurance
Risks — Terrorism Risk.
Mortgage Guaranty
During 2015, the U.S. market experienced an increase in mortgage loan originations driven by a decrease in residential
mortgage interest rates in the latter part of 2014 that persisted throughout most of 2015, and experienced increased
purchase volume that was favorably impacted by a drop in unemployment, improving housing prices, and lower down
payment requirements. In addition, the current economic environment has favorably impacted incurred losses through fewer
delinquencies and higher cure rates. If the current economic environment persists, Mortgage Guaranty expects to benefit
through increased purchase volume and, for policies originated in the higher interest rate environment prior to 2012, increased
refinancing activity. Mortgage Guaranty also expects current interest rates to have a favorable impact on the persistency of
business written during 2012 and the first half of 2013, since refinancing would be unattractive to homeowners who
originated mortgages at the lower residential mortgage interest rates prevalent in that time period.
Mortgage Guaranty also expects that the delinquency rate and cure rate will remain close to 2015 levels during 2016. Mortgage
Guaranty believes the combination of the factors described above will result in favorable operating results for 2016.
On December 31, 2015, the Private Mortgage Insurer Eligibility Requirements (PMIERs) issued by Fannie Mae and Freddie
Mac (collectively, the GSEs) became effective. Mortgage Guaranty met the PMIERs requirements as of December 31, 2015.
Subject to interpretation and the prospective amendment of the new requirements by the GSEs, Mortgage Guaranty’s
minimum required assets under PMIERs was $3.0 billion as of December 31, 2015, and its estimated available assets were
$3.6 billion, exceeding the required assets by $600 million.