The Commercial Insurance segment provides insurance products and services to AIG’s corporate customers and contributes around half of AIG’s top line. In 4Q14, operating income before taxes for the segment increased to ~$1.2 billion, compared to an operating income of slightly under ~$1.0 billion in 4Q13.
Higher profits in property and casualty, and mortgage insurance businesses drove this increase, which we’ll describe in subsequent sections.
Net premiums written
Net premiums written, or NWP, refer to premiums available to an insurance company, like AIG (AIG), ACE (ACE), Allstate (ALL), Chubb (CB), and companies held by the Financial Select Sector SPDR ETF (XLF), after paying some premium to a reinsurer for sharing some of the risk associated with the insurance contract.
For more details on how to account for insurance revenue, please read Market Realist’s An investor’s guide to the insurance business.
As shown in the chart above, AIG’s top line dipped marginally in 4Q14 when compared to 4Q13, driven by disciplined sales and underwriting in casualty products in the commercial P&C business. However, property insurance and financial insurance lines saw growth in new business, offsetting the lower sales in casualty lines. Property insurance products saw increased sales outside the US, while the financial lines saw growth in all regions.
Net investment income—a key profit driver for an insurance company—declined 7% in 4Q14 compared to the previous year on account of lower yields and lower invested assets.
In the next article, we’ll look at commercial P&C’s underwriting result in details.