AIG Earnings and Investment Portfolio Report
AIG
Glossary of Non-GAAP Financial Measures
Glossary of Non-GAAP
Adjusted Revenues exclude Net realized capital gains (losses), income from non-operating litigation settlements (included in Other income for GAAP purposes) and changes in
fair value of securities used to hedge guaranteed living benefits (included in Net investment income for GAAP purposes). Adjusted revenues is a GAAP measure for our
segments.
■ Ratios: We, along with most property and casualty insurance companies, use the loss ratio, the expense ratio and the combined ratio as measures of underwriting performance.
These ratios are relative measurements that describe, for every $100 of net premiums earned, the amount of losses and loss adjustment expenses (which for General Insurance
excludes net loss reserve discount), and the amount of other underwriting expenses that would be incurred. A combined ratio of less than 100 indicates underwriting income and
a combined ratio of over 100 indicates an underwriting loss. Our ratios are calculated using the relevant segment information calculated under GAAP, and thus may not be
comparable to similar ratios calculated for regulatory reporting purposes. The underwriting environment varies across countries and products, as does the degree of litigation
activity, all of which affect such ratios. In addition, investment returns, local taxes, cost of capital, regulation, product type and competition can have an effect on pricing and
consequently on profitability as reflected in underwriting income and associated ratios.
Accident year loss and combined ratios, as adjusted: both the accident year loss and combined ratios, as adjusted, exclude catastrophe losses and related reinstatement
premiums, prior year development, net of premium adjustments, and the impact of reserve discounting. Natural catastrophe losses are generally weather or seismic events having
a net impact on AIG in excess of $10 million each and man-made catastrophe losses, such as terrorism and civil disorders that exceed the $10 million threshold. We believe that
as adjusted ratios are meaningful measures of our underwriting results on an ongoing basis as they exclude catastrophes and the impact of reserve discounting which are outside
of management's control. We also exclude prior year development to provide transparency related to current accident year results.
Underwriting ratios are computed as follows:
a) Loss ratio = Loss and loss adjustment expenses incurred + Net premiums earned (NPE)
b) Acquisition ratio = Total acquisition expenses + NPE
c) General operating expense ratio = General operating expenses + NPE
d) Expense ratio = Acquisition ratio + General operating expense ratio
e) Combined ratio = Loss ratio + Expense ratio
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f) Catastrophe losses (CATS) and reinstatement premiums = [Loss and loss adjustment expenses incurred - (CATS)] + [NPE +/(-) CYRIPS] - Loss ratio
g) Accident year loss ratio, as adjusted (AYLR) = [Loss and loss adjustment expenses incurred - CATS - PYD] [NPE +/(-) Reinstatement premiums related to catastrophes
(CYRIPS) +/(-) RIPS related to prior year catastrophes (PYRIPS) + (Additional) returned premium related to PYD on loss sensitive business ((AP)RP) + Adjustment for
ceded premiums under reinsurance contracts related to prior accident years]
h) Accident year combined ratio, as adjusted = AYLR + Expense ratio
i) Prior year development net of (additional) return premium related to PYD on loss sensitive business = [Loss and loss adjustment expenses incurred - CATS - PYD] +
[NPE +/(-) CYRIPS +/(-) PYRIPS + (AP)RP] - Loss ratio - CAT ratio
■ Premiums and deposits: includes direct and assumed amounts received and earned on traditional life insurance policies, group benefit policies and life-contingent payout
annuities, as well as deposits received on universal life, investment-type annuity contracts, Federal Home Loan Bank (FHLB) funding agreements and mutual funds.
Results from discontinued operations are excluded from all of these measures.
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