AIG 2015 Annual Report Download - page 92

ITEM 7 / RESULTS OF OPERATIONS / COMMERCIAL INSURANCE
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INSTITUTIONAL MARKETS PRE-TAX OPERATING INCOME (in millions)
2015 and 2014 Comparison
Pre-tax operating income in 2015 decreased compared to 2014, primarily due to a decrease in net investment income. Fee
income increased in 2015 compared to 2014, driven by growth in reserves and assets under management, primarily from
continued development of the stable value wrap business. The notional amount of stable value wrap assets under
management at December 31, 2015 grew by $3.0 billion or nine percent from December 31, 2014. The increases in premiums
and benefit expense in 2015 compared to 2014 were primarily due to the premiums received and establishment of future policy
benefit reserves for terminal funding annuities issued in 2015.
Net investment income in 2015 decreased compared to 2014, primarily due to lower returns on alternative investments in
hedge funds and lower yield enhancements from bond call and tender income. See MD&A – Investments – Life Insurance
Companies for additional information on the investment strategy, asset-liability management process and invested assets of
our Life Insurance Companies, which include the invested assets of the Institutional Markets business.
General operating expenses in 2015 increased compared to 2014, primarily due to higher state guaranty fund assessment
expenses, technology investments and higher interest expense.
2014 and 2013 Comparison
Pre-tax operating income for 2014 decreased slightly compared to 2013, as a decrease in net investment income was only
partially offset by an increase in fee income. The increase in fee income was driven by growth in reserves and assets under
management, primarily from strong development of the stable value wrap business. The notional amount of stable value wrap
assets under management at December 31, 2014 grew by $7.8 billion or 32 percent from December 31, 2013, which excluded
a $2.5 billion deposit to the separate accounts for a stable value funding agreement. Growth in reserves also reflected a GIC
deposit of $450 million in the fourth quarter of 2014 under a funding agreement-backed notes issuance program, in which an
unaffiliated, non-consolidated statutory trust issues to investors medium-term notes, which are secured by GICs issued by one
of the Life Insurance Companies. Under the funding agreement-backed notes program, issuances will be made
opportunistically based upon pricing and demand available in the marketplace.
Net investment income for 2014 decreased compared to 2013, primarily due to lower net investment income from alternative
investments and from the base portfolio. The 2014 decrease in alternative investment income of $41 million compared to 2013
primarily reflected high hedge fund income in 2013 due to favorable equity market conditions. The decrease in base net
investment income in 2014 compared to 2013 primarily reflected lower base portfolio yield as a result of reinvestment in the