AIG 2015 Annual Report Download - page 81

ITEM 7 / RESULTS OF OPERATIONS / COMMERCIAL INSURANCE
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million in 2014. See Insurance Reserves — Non-Life Insurance Companies – Discounting of Reserves for further discussion.
Catastrophe losses were $581 million in 2015 compared to $602 million in 2014.
Acquisition expenses decreased slightly in 2015 compared to 2014, primarily due to the strengthening of the U.S. dollar
against the Major Currencies, as discussed above. Excluding the effect of foreign exchange, acquisition expenses increased
primarily due to an increase in commission expenses in certain classes of business in Property and Specialty and higher
premium taxes and other assessments reflecting a change in business mix.
General operating expenses decreased in 2015 compared to 2014, primarily due to the strengthening of the U.S. dollar
against the Major Currencies, as well as lower employee-related expenses, partially offset by increased technology-related
costs, and the acquisition of NSM, whose expenses were consolidated commencing in the second quarter of 2015.
Net investment income decreased in 2015 compared to 2014, primarily due to lower income on alternative investments and a
decrease in net investment income related to assets accounted for under the fair value option.
See MD&A — Investments for additional information on the Non-Life Insurance Companies invested assets, investment
strategy, and asset-liability management process.
2014 and 2013 Comparison
Pre-tax operating income increased in 2014 compared to 2013 due to decreases in underwriting loss, partially offset by a
decrease in net investment income. The decrease in underwriting loss was primarily due to an increase in production, lower
charges due to changes in discount for workers’ compensation reserves as discussed further under Insurance Reserves –
Non-Life Insurance Companies – Discounting of Reserves, lower catastrophe losses and lower general operating expenses.
The loss reserve discount charge decreased to $71 million in 2014 from $322 million in 2013. Catastrophe losses decreased to
$602 million in 2014 from $710 million in 2013. These decreases were partially offset by higher net adverse prior year loss
reserve development in all lines of business except for Property, and an increase in current accident year losses reflecting
higher frequency of non-severe losses in the Property and Specialty businesses. The current accident year losses for 2014
included 30 severe losses totaling $592 million compared to 27 severe losses totaling $569 million in the prior year. Net
adverse prior year loss reserve development, including related premium adjustments, was $550 million and $294 million in
2014 and 2013, respectively, as discussed further under Insurance Reserves – Non-Life Insurance Companies – Net Loss
Development.
Acquisition expenses decreased in 2014 compared to 2013 primarily due to a reduction in expenses related to personnel
engaged in sales support activities, and lower premium taxes and guaranty fund and other assessments reflecting a change in
business mix.
General operating expenses decreased 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.
Net investment income decreased in 2014 compared to 2013, primarily due to a decrease in interest rates during 2014, as
yields on new purchases were lower than the weighted average yield of the overall portfolio, lower income on alternative
investments, and lower income associated with investments accounted for under the fair value option, as the increase related
to the PICC P&C rights offerings was more than offset by a decrease from fixed maturity investments accounted for under the
fair value option. These were partially offset by the effect of continued portfolio diversification. The decrease in allocated net
investment income is also due to a reduction in net loss reserves.