Q1 2021 American International Group Inc Earnings Call

May 7, 2021

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Okay, ladies and gentlemen, please standby.

Good day, and what could the Aig's first quarter 2021 financial results Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to MS. Deborah curtail head of Investor Relations. Please go ahead.

Thank you good morning, and thank you all for joining US today's call will cover Aig's first quarter 2021 financial results announced yesterday afternoon, the news release and financial supplement and financial results presentation were posted on our web site at Www, AIG Dot com and the 10-Q for the quarter will be filed.

Later today after the call. Our speakers today include Peter Zaffino, President and CEO and Mark Lyons Chief Financial Officer. Following their prepared remarks, we will have time for Q&A, David Mcelroy, CEO General insurance and Kevin Hogan CEO of life and retirement will be available for Q&A.

Today's remarks may contain forward looking statements, including comments relating to company performance strategic priorities, including Aig's intent to pursue of separation of its life and retirement business the.

The business mix and market conditions, and the effects of COVID-19 on AIG the.

These statements are not guarantees of future performance and four four events and are based on management's current expectation.

Actual performance and events may materially differ.

Factors that could cause results to differ include the factors described in our 2020 annual report on form 10-K, and our other recent filings made with the SEC.

It is not any under any obligation and expressly disclaims any obligation to update forward looking statements, whether as a result of new information future events or otherwise.

Additionally, some remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release financial supplement and earnings presentation, all of which are available on our website.

Now I will turn the call over to Peter.

Hello and.

Thank you for joining us today.

This morning, I will start our call with the high level overview of Aig's consolidated financial results for the first quarter.

I will then review of results from General insurance and the significant progress we've made with our portfolio, which allowed us to pivot from remediation to growth heading into 2021.

Following that I will review first quarter results for life retirement, I will then provide an update on the work we're doing on the separation of life retirement from AIG.

And lastly, I'll provide an AIG 200 update.

Mark will give you more details on the financial results and then we will take questions.

AIG had an excellent start to the year.

And we have significant momentum across the entire organization and the first quarter, we delivered outstanding performance and general insurance.

Saw continued solid results and life retirement.

Made meaningful progress on the separation of life retirement from AIG, and we significantly advance AIG 200, with the transformation of remaining on track to deliver $1 billion of savings by the end of 2022 against the cost to achieve of one 3 billion.

In addition, our balance sheet and financial flexibility remain exceptionally strong, allowing us to focus on profitable growth across our portfolio.

Prudent investments and modern technology and digital capabilities.

Separating life retirement from AIG, and a matter of that maximizes value for our stakeholders and positions both companies for long term success and returning capital to our shareholders when appropriate.

As you saw in our press release, our adjusted after tax income and the first quarter was $1 <unk> per diluted share compared to 12 and the prior year quarter.

We ended the first quarter with current liquidity of $7 9 billion.

And we repurchased $92 million of common stock in connection with warrant exercises and an additional $270 million against the $500 million buyback plan, we mentioned on our last call.

We expect to complete the additional $230 million of that buyback plan by the end of the second quarter.

Turning to general insurance net premiums written increased approximately $600 million year over year or approximately 6% on and FX constant basis, driven by nearly $1 billion or a 22% year over year increase and our global commercial businesses.

The 22% increase and global commercial was driven by higher Retentions excellent new business production, particularly in international strong performance and first quarter portfolio repositioning and continued rate momentum.

North America commercial net premiums written grew by approximately 29% and outstanding result, due to a variety of factors, including increased one one writings of Validus re kantar.

Continued strong submission flow and lessons and rate improvement strong retention and higher new business and segments, we have been targeting for growth.

In addition, as the result of the improved quality of our North American commercial portfolio and our improved reinsurance program, which now includes lower attachment points and North America, we did not need the purchase as much cat reinsurance limit and 2021, the benefits of which will come through in future quarters.

International commercial had an exceptionally strong first quarter with the year over year growth and net premiums written of approximately 13% on and FX constant basis increases were balanced across the portfolio with the strongest growth and international financial lines and followed by our specialty business.

Looking ahead, we expect overall growth and net premiums written for the remainder of 2021 to be higher than the 6% we saw and the first quarter of this year with more balanced growth across our global commercial and personal portfolios.

With respect the rate momentum continued with overall global commercial rate increases of 15%.

North America commercial rate increases were also 15% driven by improvements and lessons and casualty with 36% rate increases excess casualty with 31% rate increases and financial lines with rate increases over 24%.

International commercial rate increases maintained strong momentum at 14% and the first quarter of 2021, which is typically the largest quarter of the year for our European business.

These increases were driven by energy with 26% rate increases commercial property with 19% rate increases and financial lines with 20% rate increases.

Turning to global personal insurance net premiums written and the first quarter declined 23% on and FX constant basis due to our travel business continuing to be impacted by the pandemic as well as reinsurance sessions. The syndicate 2019, our partnership with Lloyd's.

Adjusted for these impacts global personal insurance net premiums written were down only one 6% on and FX constant basis.

We expect to see strong year over year growth for the remainder of the year with the rebound and global personal insurance as the effects of COVID-19 subside, the repositioning and re underwriting of this portfolio and nears completion and a full year of reinsurance sessions relating to the relating to syndicate 2019 will be complete.

We are very pleased with the continued improvement and our combined ratios, including and excluding cats.

I don't need to remind everyone, where we were when I outlined our turnaround strategy three years ago.

And the first quarter. This year the adjusted accident year combined ratio was 92, 4% of 310 basis point improvement year over year, driven by a 440 basis point improvement and our adjusted commercial accident year combined ratio.

The adjusted accident year loss ratio improved 160 basis points to 59, 2% driven by a 330 basis point improvement and global commercial.

The expense ratio improved 150 basis points, reflecting the impact of AIG, two hundred's savings and continued expense discipline.

We expect to continue to improve the expense ratio of throughout 2021, particularly as we deliver on our AIG 200 programs.

To provide further color on combined ratio improvements and North America of the adjusted accident year combined ratio improved to 95, 6% of 210 basis point improvement year over year.

This reflects a 370 basis point improvement and the North America commercial lines of adjusted accident year combined ratio, which came in at 93, 9%.

And the international the adjusted accident year combined ratio improved to 92% of 340 basis point improvement year over year.

This reflects a 490 basis point improvement and the international commercial lines adjusted accident year combined ratio, which came in at 86, 8% and 150 basis point improvement and the international personal lines adjusted accident year combined ratio, which was 94%.

Sure.

With respect to catastrophes first quarter 2021 was the worst first quarter for the industry and over a decade in terms of weather related cat losses, largely due to winter storms in Texas.

Net cat losses, and general insurance of $422 million.

Primarily driven by the Texas storms and do not include any new COVID-19 related estimated losses for the first quarter.

Now, let me touch on reinsurance assumed as I noted Validus re saw strong one one renewals across most lines with attractive levels of risk adjusted rate improvement.

The team focus on prudent capital deployment and portfolio construction, while improving technical ratios and reducing volatility.

With respect to April one renewals within international property rate adjustments varies from mid single digits to upwards of 30% and loss impacted accounts and our Japanese renewals were very successful with 100% client retention net limits largely similar year over year and risk adjusted rate increase.

And as which were and the high single digits.

Before moving on I want to highlight the quality and the strength of our general insurance portfolio.

And of course optimization work will continue.

But the magnitude of what was accomplished over the last three years is worth reflecting on because of the first quarter of 2021 was an important inflection point for our team our focus pivoted from remediation to driving profitable growth.

These are a couple of concrete examples of how we have repositioned the global portfolio.

Gross limits and global commercial will reduce by over $650 billion.

North America excess casualty removed over $10 billion and lead limits and increased writings and mid excess layers and order to achieve a more balanced portfolio.

And in Lexington, we repositioned this business to focus on wholesale distribution and the.

And the team grew the top line and 2020 for the first time and over a decade. The portfolio is now more balanced and the submission flow has increased over 100% the last couple of years.

The enormity of the turnaround and the complexity of execution that was accomplished cannot be understated.

We now have a disciplined culture that is grounded and underwriting fundamentals of well defined and articulated risk appetite we remain.

And laser focus on terms and conditions and obtaining rate above loss costs.

And we have and appropriate reinsurance program in place to manage the severity and volatility.

Our global portfolio is poised for improving profitability and more predictable results.

While all of this was taking place and general insurance, our colleagues and life retirement, and an excellent job maintaining a market leading position and the protection and retirement savings industry and together with our investment colleagues consistently delivered solid performance against the backdrop of persistent low interest rates and challenging market.

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Turning to life retirement first quarter. This business also had strong results adjusted pretax income and the first quarter was $941 million and adjusted return on common equity was 14, 2%, reflecting our diversified businesses and high quality investment portfolio.

The sensitivities, we provided last quarter generally held up with respect to equity markets 10 year reinvestment rates and mortality, although first quarter results were towards the higher end of our mortality expectations net of reinsurance and other offsets.

We continue to actively manage impacts from the low interest rates and tighter credit spreads environment and the range. We previously provided for expected annual spread compression of eight to 16 basis points has not changed.

Our high quality investment portfolio is well positioned to navigate uncertain environments as demonstrated by our steady performance through the macroeconomic stress and high levels of volatility and 2020.

And our variable annuity hedging program has continued to perform as expected.

Providing offsetting protection during periods of volatile capital markets.

We believe life retirement is positioned to deliver strong sustainable financial results due to the quality of its balance sheet diversified product offerings and distribution effective hedging programs and disciplined risk management.

With respect to the separation of life retirement from AIG, we continue to work diligently and with the sense of urgency towards an IPO of up to 19, 9% of the business.

We've made significant progress on several fronts, including preparing standalone audited financials, and having an independent party conduct a thorough actuarial review.

No concerns have been raised about life retirement portfolio as a result of this work.

As I noted on our last earnings call. We did receive a number of credible inquiries from parties interested in purchasing of minority stake and life retirement, and our investment management group, we conducted a robust of valuation of those opportunities to determine if they offered a better long term outcome for our stakeholders.

And IPO.

At this time, we believe and IPO remains the optimal path forward to maximize value for our stakeholders and to position the business for additional value creation as a standalone company.

In addition, and IPO allows AIG to retain maximum flexibility regarding the operations of the business as well as the separation process overall I am pleased with the progress we've made.

Turning to AIG 200, all 10 operational programs are deep into execution mode are.

Our transformation teams continued to perform exceptionally well despite the continued remote work environment.

Our recent progress on it modernization has enabled us to reach the halfway point or $500 million of our run rate savings target of two.

$250 million and cumulative run rate savings has been realized and atti through the first quarter of this year with $75 million of incremental savings achieved within the first quarter income statement.

Key highlights on our progress include the.

And the successful transition of our shared services operations and over 6000 colleagues to Accenture at year end 2020.

This partnership is going extremely well with kpis at or better than pre transition levels.

We also negotiated of multiyear agreement with Amazon Web services to execute on and accelerated cloud strategy, which is of significant step forward and modernizing our infrastructure.

And with the new highly experienced leader in Japan, we made significant progress during the first quarter on our AIG 200 strategy and Japan and are on track to finalize target outcomes as we modernize this business by developing digital capabilities with agile product innovation.

Before turning the call over to Mark I want to thank our global colleagues for their resilience and excellent support of our clients policyholders distribution partners and other stakeholders the.

The last year, and particular brought unimaginable stress and tragedy across the world.

And for our colleagues it came during a time of significant and foundational change yet.

And yet they never loss side of our purpose at AIG and continue to be focused and dedicated to the important work, we do each other and the communities and which we live and work I could not be prouder of what we've achieved together.

We are and great businesses have global scale loyal clients exceptional relationships with distribution of reinsurance partners World class experts and industry veterans and we strive to be of responsible corporate citizen with a diverse and inclusive workforce that delivers value to our shareholders and all other.

<unk> I am confident AIG is on its way to becoming a top performing company and everything that we do with that I will turn the call over to markets.

Thank you Peter and good morning, everyone.

Since Peter has already provided a good overview of the quarter I'll just add that we posted a seven 4% annualized adjusted return on common equity at the AIG level and eight 2% adjusted return on tangible common equity at the AIG level and eight 5% adjusted return on.

The segment common equity for general insurance, and a 14, 2% adjusted return on the segment common equity per life and retirement.

Now moving to general insurance first quarter adjusted pre tax income was $845 million up $344 million year over year, primarily reflecting increased underwriting income and international as well as the increase global net investment income driven by alternatives.

Catastrophe losses totaled $422 million pre tax of $7 three loss ratio of points this quarter compared to six nine loss ratio of points and the prior year quarter.

And the cat losses were mostly comprised of $390 million related to the winter storms, primarily impacting commercial lines, including AIG right.

The net impact of the winter storms and reflects the benefit of our commercial reinsurance program and changes to our PSEG portfolio as the result of the syndicate 2019.

Overall prior year development was 56 million favorable this quarter, which included 58 million of net favorable development and North America, driven by 52 million of favorable development from the ADC amortization.

And 2 million of net unfavorable development and international.

It's worthwhile to note that general insurance they'll have $6 6 billion remaining of the 80% quota share ADC cover.

There was also embedded within these figures $33 million of unfavorable development related to COVID-19 claims that relate back to 2020 loss of occurrences or of movement of less than 3% emanating, primarily from Validus re and Talbot, our Lloyd's syndicate.

Our general insurance business continued to materially improve driven largely by strong accident year 2021, ex cat showings and both North America and.

And the international commercial life.

So rather than double up on facts that Peter has shared.

And the main drivers of the Attritional underwriting gain improvements were for North American commercial Lexington financial lines, and excess casualty and from international commercial the main drivers of improvement stemmed from property Talbot and financial life.

As Peter noted on the global commercial lines basis, the accident year combined ratio, excluding cat was 94%, which represents a 440 basis point improvement over the prior year's quarter with 75% of that improvement attributable to a lower loss ratio and 25% of the improvement attributable to a lower <unk>.

Expense ratio.

Turning to personal insurance starting in the second quarter of this year, meaning next quarter, our year over year comparisons will begin to improve.

The timing of the initial COVID-19 impact and the formation of the Syndicate 2019 and May of 2020.

Although north America, and personal lines had a 74% drop and net premiums written as Peter highlighted it's also important to understand that the other units within the segment, which represented nearly 50% of the quarter's net earned premiums is comprised mostly of warranty and personal A&H business.

Their net premiums only follow up marginally.

The international personal lines of business, which by size and dominate our overall global personal insurance business continues to perform well with 150 basis points improvement and the accident year ex cat combined ratio, reflecting and approved loss ratio and expense discipline.

Now to expand on some of the Peter's marketplace commentary.

Various areas continue to accelerate the adequacy of achieved the rate beyond that of prior quarters.

For example, the.

The level of excess casualty rate increases continue and in many units exceeds the prior results such as cat excess coverage out of Bermuda North.

<unk> America, corporate and national admitted excess and the Lexington.

The increase achieved in the first quarter of 2020, and compounded and the first quarter of 2021 of the loan ignoring prior to 2020 rate increases exceeded 150% per Bermuda based capacity business, which makes sense given recent years' price efficiency on these capacity excess layers.

And of approximately 115% per the other mentioned unit.

U S financial lines on the same compound basis has seen an excess of 80% increases for the staples of D&O and <unk>.

Internationally, the 14% first quarter overall rate increase saw continued great expansion in key markets such as the U K at plus 23% global specialty at plus 15% Europe and the middle East at 14% Latin America at 13%.

And Asia Pacific also at 13% when excluding the tempering influence of predominantly Japan at the 3%.

And lastly, ciber achieved our highest rate increase and yet at 41% for the quarter.

These increases are clearly broad based by region and line of business all around the world.

I would now like to spend the few minutes on two observations.

One the impact of net rate change versus growth rate change and.

To some examples of new business rate adequacy relative to renewal rates out of it. So first are.

<unk> achieved North America commercial rate change for the quarter on a net basis.

Now estimated to be at least the 150 basis points stronger than the corresponding growth rate change largely due to our increased net positions across selected product lines.

Last year much of the achieved growth rate increase was being ceded to reinsurers, where now there is much less so.

And the shift to higher net positions resulted directly from our prior stated strategy of improving the growth book, such that we had increased confidence and to retain the appropriate amount of net and.

And because we could not take a higher net position previously because of the legacy and balance of very large limits written.

Now moving onto relative rate adequacy, we see continuing edge indications and North America of new business, having stronger relative rate adequacy of our renewal rate levels in most lines of business.

And this likely doesn't reflect different class mixes.

Instead, and additional margin for a lesser known exposure.

However, this should be expected and has also historically supported given where we are and the underwriting cycle as new business is the less established with and ensure versus an existing client renewal relationship.

A further related item involves the renewal retention.

As general insurance implemented revised underwriting standard renewal retention predictably would have been impacted especially and the target life now.

Now, even with superior risk selection rate and term and condition changes that have been achieved renewal retentions have improved to the mid 80% in the aggregate across all commercial lines and both North America and across the internationally.

We also see improvement and the Lexington, where E&S has lower industry retention based on the nature of the business and this is very positive for the book and we see it across specialty lines and across most of admitted retail book. This is indicative of the re underwriting actions being successful having settled.

And now with general insurance being comfortable with the underlying and short exposures that meet our risk appetite.

Based on current market conditions, and our view of the foreseeable future. We continue to anticipate earned margin expansion throughout 2021, and then into 2022.

The resulting from Aig's favorable underwriting actions taken favorable global market conditions materially improved terms and conditions and a more profitable less volatile business mix.

As a result, I would like to reconfirm our outlook for of sub 90% accident year combined ratio, excluding cat by the end of 2022.

Global commercial lines are very nearly at the sub 90% level now and.

The global personal lines is running at 96% for the first quarter, given our portfolio composition the market conditions and our strategic repositioning of North America personal we anticipate greater continued margin expansion within commercial lines and personal lines.

We are highly confident that we will achieve our sub 90% target and have several paths to help us get there some via mix some by a reasonable market conditions persisting and some by the expense levers.

Now.

I'd also like to unpack some of Peter's high level net written premium growth comments for 2021 with an emphasis here on next quarter second quarter.

North America commercial is expecting to see growth of approximately 10% for the second quarter of 2021 relative to the prior year quarter, driven mostly from Lexington across a host of the product lines and the admitted casualty both primary and excess.

This growth will be two pronged as.

And as growth on the front and will be coupled with lower reinsurance sessions.

Especially from those the line subject of the casualty quota share.

North America personal is expected to see significant second quarter 2021 and growth, but it is driven by the syndicate 2019 reinsurance session change that we've been signaling.

You will recall North American personal had a negative $150 million net written premiums in the second quarter of 2020 due to many syndicate 2019 treaties, becoming effective including and unearned premium cover for the PC G High net worth book.

That distortive Spike and session, which is not repeatable and the second quarter of 2021, we will give the appearance of considerable growth, but instead, we will provide a PC G. Net premiums that it's more stable on an ongoing basis.

So.

Overall for North America, both personal and commercial combined we anticipate net written premium growth between 35% to 40% for the second quarter over the second quarter of the prior year.

International commercial and the second quarter of 2021 is expected to be roughly plus 7% net written premium growth driven by global specialty financial lines, and Talbot and international Perps personal is expected to be approximately flat relative to the prior year quarter.

Now turning to life and retirement adjusted pre tax income increased by 57% or $340 million compared to the first quarter of 2020 with favorable equity markets driving higher private equity returns lower deferred acquisition cost amortization and a rebound in most areas of sales.

And higher fee income.

The increase also reflects favorable short term impacts from tighter credit spreads driving higher call and tender income and higher fair value option bond returned.

This increase was partially offset by adverse mortality as U S. COVID-19 related population and best of approximately 205000, and the first quarter were higher than our earlier anticipated, which was also reflected and our own experience and.

In terms of premiums and deposits, we continued to see encouraging improvement and retail sales individual.

Retirement premiums and deposits grew 8% from the prior year quarter, which we consider of pre COVID-19 quarter as the sales pipeline carried through March of last year with index and variable annuities, both exceeding prior year levels.

And group retirement group acquisition deposits increased significantly from prior year, although both periodic and non periodic deposits declined leading to a marginal reduction and overall growth group premiums and deposits of 2%.

And life insurance premiums and deposits grew 6% overall with year over year growth and both the U S and the international.

Finally, while institutional markets did not conclude any significant pension risk transfer transactions and the quarter.

<unk> line of direct and reinsurance transactions going into the second quarter is very strong, particularly with many defined benefit plan nearing fully funded status.

Turning to the net flows and related activity our portfolio our portfolio reflects the dynamic environment quarter by quarter of the last year.

And individual retirement net flows improved by approximately $1 billion over the first quarter of 2020, driven by variable annuities and retail mutual funds and yet when excluding retail mutual funds net flows were positive led by index annuities rebounding to the plus $1 billion for the quarter, which is virtually.

Identical to the one year ago, but with steady progress from a low of $439 million and the second quarter of 2022, the plus $1 billion. This quarter surrender rate were up slightly over the last few quarters within individual retirement for fixed and index, whereas variable annuity surrender rate had been.

More comparable as half for group retirement.

Similarly, the life business has seen consistently lower lapse or surrender rates over the last four quarters and prior.

Life and retirement continues to actively manage the impacts and the low interest rate and tighter credit spread environment.

And the previously provided range for expected.

And Youll spread compression is not changed new business margins generally remained within our target at current new money return due to active product management disciplined pricing approaches and our significant asset origination and structuring capabilities.

Moving to other operations adjusted pre tax loss was $530 million, which was inclusive of about $176 million of losses from the consolidation and the eliminations line, which principally reflects adjusted offsetting investment return and the subsidiaries by being eliminated and other operations. So it wouldn't be double counting.

Before consolidation and the elimination adjusted pre tax loss was $354 million, which was $481 million better than the first quarter of 2020, which included the $317 million adjusted pre tax loss related to afford of two and a $30 million onetime cash grant.

And given to employees to help with anticipated cost when the global pandemic began last March.

The first quarter also reflects lower corporate interest expense and lower corporate general expense and we expect this to continue throughout 2021.

However, one might expect some continued volatility within the consolidations of eliminations line, which can fluctuate based on investment returns.

Now shifting to investment net investment income on and <unk> basis was $3 2 billion or $492 million higher than the first quarter of 2020.

Adjusting first quarter 2020 for Fortitude investment income to make the comparison apples to apples. This quarter's net investment income and an API basis was actually $611 million higher than the prior year or of plus 23%, reflecting strong private equity and real estate returns as well as bond tender and call premiums.

More than offset the lower income on the FX fixed income portfolio. We continue to have a high quality investment portfolio that is positioned well under any market conditions.

Turning to the balance sheet at March 31 book value per common share was <unk> $72 37.

Down five 3% from year end, reflecting net unrealized mark to market losses on the investment portfolio adjusted book value per share was $58 69.

Up nearly 3% from December 31 at.

At quarter, and AIG parent as Peter noted had cash and short term liquidity assets of $7 9 billion and we repaid our March debt maturity of $1 5 billion and repurchased the $362 million of shares as Peter outlined.

Our GAAP debt leverage at March 31 was 28, 4% flat to year end, given the downward fixed income market movements negatively impacting the OCI. Despite the repaid debt maturity mentioned earlier.

Our primary operating subsidiaries remain profitable and well capitalized for general insurance, we estimate the U S pool, the risk based capital ratio for the first quarter. The beat between 465, and 475% and life and retirement fleet is estimated to be between 400 <unk>.

35, and 445%, both well above our target range of and.

Of that I'll now turn it back over to Peter.

Thank you Mark and of Jake I think we're ready to start Q&A.

Yes, ladies and gentlemen, if you would like to ask a question you considered the by pressing star one on your telephone keypad and just keep in mind. If you are using your speaker phone and make sure. Your mute function is released to allow your signal to reach of our equipment.

Once again star one for questions.

And we will begin with Elyse Greenspan with Wells Fargo.

Hi, Thanks, Good morning, Mike Brian question is on the.

And I'm, sorry, the likely requirement and separation.

Okay appreciate the thoughts.

And from the working towards the IPO.

And the plan in terms of.

Timing for that day.

Ladies and at some point later this year or do you have a plan.

Finer tuned around that.

Yeah, Thanks, Elyse as of.

And in my prepared remarks, and we're working with the sense of urgency.

On the IPO, we've made really significant progress working on.

<unk> Standalone financial statements actuarial have set up.

The organization to operationally separate so we're working very hard on several fronts related to the IPO and the ultimate timing of completing the steps and.

And depend on a number of factors some of our out of our control such as regulatory and market conditions.

But we're still.

Working towards the same timeline, which is by the end of 2021, but again, depending on those factors that can always slip into the first quarter 2022, but the company is focused.

And we're going through all the details and moving forward.

Okay and then my second question.

And on the market commentary.

A lot of helpful color.

Mark you said that you guys expense.

<unk> earned.

Margin expansion and throughout 2021 and into 2022.

I guess youre kind of given that the markets.

It sounds like for the next year and the expectations that we would.

Stabilized and get closer to the trend in 2022, and just trying to put that together and you just kind of giving us the outlook.

Remain strong through 2021, and then we'll see all of 2022 of the transpires with earned birthdays loss trends.

Let me start with your question on rate and then I'll turn it over to Mark to provide a little more context, and then talk about the earned but.

Look and this is the third year, where we're seeing right at least debt.

And above loss cost and again, you really have to just take a look at the overall portfolio because quarter to quarter. It may be a little bit different.

Meaning just the seasonality of our business, whether it's validus re having a big and subsidy and the first quarter crop specialty Europe, driven more towards the first quarter. So when we look at it we're looking at first quarter. The first quarter and there has been no slowdown in terms of the rate environment and believe that we are building mark.

And above loss cost rate on rate and I think thats kind of where mark was alluding to the.

A market environment of lease always hard to predict but we think the market that we're in as the market, we're going to see for the remaining part of the year and it's very hard to predict beyond that Mark do you want to add any more context.

Just a bit thank you Peter.

I think Peter Naylor, mostly of leaf.

And I reemphasize, though of what Peter said every quarter to mix is pretty different and I know thats. The written viewpoint that earned in.

But we've already written.

The business in that.

And that we can last year and it's going to earn at the 2021 and we've already written one quarter and that's going to go into 2022.

And we're not counting.

And we believe we're going to of the margin expansion.

As denoted debt.

Isn't really depend on the existing.

The level of of our.

The rate levels and the markets.

Okay. Thanks for the color. Thanks next question please.

Next question will come from Brian Meredith with UBS.

Yes. Thanks, So a couple of here quickly Mark I'm curious you said you had some COVID-19 developing and the quarter, where did that come from it and are we pretty close to what you think kind of being done with the COVID-19 related losses at least in the.

And the general insurance business, I understand and can still be some more of licenses.

Good day Mark.

And so yes, we can.

And localize a lot of that to contingency business out of the Talbot.

And on Validus I think there was really just the.

Two contracts involved so it's not and go with the widespread and anyway.

Thats overwhelmingly accounts for it.

And I think for your second question, Yes, we didn't put any additional provisions where we're happy where we are.

And with it so I think we're all of it.

Outflow say the least.

Got you and then my second question I guess for.

Peter for both of you all.

What is your kind of view with respect to.

Loss trend or kind of towards the inflation and loss trend as we kind of the economy reopens here of course reopen kind of.

How are you thinking about that.

From the reserving perspective, and maybe also from a pricing perspective.

Yes, I'll have Marc.

Add to my comments, we're watching it very carefully Brian.

It's something that again as it emerges throughout the world the economy starts to reopen.

We look at it.

Line of business by line of business lead versus excess.

Different trends that we're seeing in the portfolio.

The emerging over the last year and then how we forecast that to look for the futures I think the balance of the portfolio is being shaped and.

And a way to mitigate that and we're very focused on making sure that even and the growth that we outlined in the first quarter that we're growing where we.

And then we're going to get the risk adjusted returns in terms of deploying the capital. So I think we're very disciplined.

Circular with underwriting actuarial claims we're learning a lot and making sure that we're positioned the portfolio of accordingly, Mark do you want to add anything to that.

Yes, Thank you Peter.

I may have commented on this before but I think it's part of it.

Worth bearing again long term there is generally been of 200 basis points.

Addition, beyond economic of inflation for social inflation.

Clearly that's been south of that.

Over the last few years, but debt.

One way of looking at it by having a range of loss trends.

Necessarily just point estimate and it really varies by line of business clearly.

I think in the past I've also commented that our loss trend and excess casualty for example is very close to double digits.

Number one and so it really it varies across the board and when you get to.

The Peters comment on portfolio I think of the best way to insulate yourself from unexpected spikes and economic or social inflation irrespective of which one.

And is by having the portfolio change and the the mix away from lead and having more mid access and not just and casualty, but other places aggregate and lead moves that portfolio further away from risk insulating you more from any of.

Compounds of use of that so I think I think that's how we look at it and I think all of that is important that goes to the fair.

Yes, Mark and I was just part of my question ourselves and is asking is do you think about when you make reserve of sanctions you pick the assumptions are you, making different assumptions with respect to what potential loss trend and when you're pricing the business.

Okay.

Not.

<unk>, because you have islander year of.

Views right so.

The claims when they are settled or when the reported don't care what their accident year loss.

Gotcha.

Okay. Thank you.

Thanks, Brian.

Okay.

Next question I'll hear from Paul Newsome with Piper Sandler.

Good morning, and.

Congratulations on the quarter.

And I was hoping you can turn to maybe a big picture question about the life insurance business.

And and just is there kind of a path.

And the positive net flows.

Obviously the.

The.

Institutional business is volatile quarter to quarter, but.

Maybe you could just give us a sense of especially as we get closer to thinking about the life IPO.

How does the net flows.

Right.

Recoveries of a positive model.

Okay. Thanks, Paul Kevin.

Yes. Thanks, Thanks, Paul the net flows reflect the trends of premiums and deposits as against the surrender behavior as Mark pointed out we haven't really seen much material change and the surrender behavior, a little bit within sort of expected margins, but premiums and deposits and Australia and other storage and.

And we.

We said that the second quarter last year was going to be the low watermark. It certainly was and in fact, the first quarter of this year is one of the largest sales quarters, we've had and the individual businesses since we created aig's financial distributors and.

While the month of January was actually still below last year, and we consider last years first quarter a pre COVID-19.

Quarter.

It's really the pipelines where flow right through March April.

And we saw growth from February over January March over February.

Pretty significant growth. So the end of the quarter were really back at what we'd consider to be normal run rates for that business and as Mark pointed out both index and variable annuity very strong for us there.

And so the one line of business fixed annuities, there a little bit lower than historical levels, but we also saw recovery and fixed annuities towards the end of the quarter and.

So we're feeling optimistic about the forward.

Curve for the individual business and as Mark pointed out across annuities.

We've announced relative to the retail mutual funds right we had positive flows.

So I am confident relative to the flows and the individual retirement business.

Group retirement.

A little bit of a different story the.

The group acquisitions, the new group acquisitions actually worse, one of our strongest quarters and increased by $150 million over the prior year, whereas periodically we're down about $50 million and I think that reflects furloughs and people, leaving the workforce and.

And then the non periodic were also down a little bit for a variety of reasons and and the group retirement business, we still see some modest negative flows, but I think that reflects the fact that we're a <unk>.

Small and medium sized plan provider and and.

And the consolidation that continues to go on and healthcare, we do see some of that.

Large case consolidation.

But the assets under management of continuing to grow obviously supported by equity markets and Thats, an important base of earnings for the fee side of the of the business. So we feel confident we're being careful about capital deployment and we're seeing conditions improve.

And our diverse product range and channel allow us to be careful where we deploy the.

Capital and we're seeing we're seeing that start to come through and the first quarter.

Is there are markets component to earn interest rate component to keeping the Roe.

The stable in the life business.

Yes.

Well certainly we.

We provide the sensitivities and depending upon where equity markets are where interest rates are and where credit spreads are and which way, they're going and they have kind of of short term.

Impacts on earnings volatility, but we price our products.

To make sure that we're making our returns based on.

Broadly expected market conditions, not necessarily of single deterministic scenarios. So we're not relying on market returns and necessarily and the pricing of our products.

Thanks, Paul.

Thanks next question.

Next question will come from Ryan Tunis with autonomous research.

Okay, great. Thanks, and good morning had one for Mark and would even be interested and David Scott because he's on the call but.

I guess thinking about classic economic inflation.

Wage driven historically.

And it's been kind of bad for workers' comp and it's been a long time since we've had it.

Are the risks from that type of scenarios on that line kind of <unk>.

The same as they were 20 years ago are the mitigating factors just how are you thinking about.

Workers' comp if we do have.

Just the normal inflationary economic cycle.

So let me start.

You got to remember that two thirds of our business is on high Retentions and so.

And the fluctuation of frequency and and wage inflation and loss cost inflation is largely retained by our clients. So we've seen some fluctuation just because of the high attach and points and which we have and the workers' comp book and so.

Day has been working really hard on our large account business and well as well as workers' compensation in terms of the positioning of that and I think the attachment points and the positioning of the book is really important day do you want to just talk a little bit about the what.

And what Youre seeing and the marketplace and how we are reacting to it.

Yes, Thank you Peter.

The workers' comp I think there was some concern with COVID-19 that there would be presumption that mostly does not affect our book, Okay because of the high Retentions and our clients have that's very different.

And the middle market books, and the and the small commercial books that might exist I think the.

The more illuminating issue is that workers' comp has been a profitable line.

Whether it was the state.

The state laws that muted debt and often we get lost and our generalization of what is rate increase workers' comp has had.

Modest to two negative rate increase because its been profitable for the industry and and I think it's very important for everybody and understand that that that's the discrete market and.

And a lot of the different parts of the markets that we trade and.

And that's absorbed by our clients so the debt.

And that same client has general liability of our financial lines or or even property, that's a different market with different pricing and might be existing and the workers comp markets. So workers comp market has actually worked and.

And he talks about it and in terms of the the rate increase but that's a that's a discrete.

Tight market debt reflects that and I think our industry is fairly sophisticated to understand why that happens and then why other businesses need rate or need rate to expect to reflect the exposure. So.

It's.

That's the workers comp market and it's been a winner for the industry because of the.

And the reforms that happened at the state level.

Hey, Brian.

And just one quick thing if I could have you really started the question.

And the correlation on wage and.

And given the peer really talking about two thirds of the book is really lots of sensitive of our high attachment point, it's actually more of a medical question.

And then a wage and density question.

Because the medical.

Trends is what could sneak over especially on major of permanent partial.

Of that nature of the permanent total so that's why it was actually a.

We are and it really good position on that because of the analysis that was done about three years ago on that book, that's still holding today.

So all.

Although the past the assumptions are absolutely holding.

Understood and then.

My follow up is just thinking about you're running at a little bit over 92. So you need about two points to get sub 90, just listen to the rate of loan.

And assuming we would be able to get you. There obviously I think that there are some offsetting headwinds or yes.

And just other things that.

Along the way you got to get past I'm not sure if thats more new business and what could you just remind us of.

Some offsets to rate in terms of getting down to that 90 of the next couple of years.

Yes, Thanks, Brian.

So theres multiple.

The factors in terms of driving the sub 90 combined ratio. One is we had a terrific start to the year and so you can see we're driving top line growth driving margin improving combined ratio. So we like.

And the momentum that we have I think we're going to focus on continuing on the underwriting side certainly the culture, we're building out of risk selection and terms and conditions, making sure that we're getting rate above loss cost is the discipline that day to driving through general insurance.

And they're doing very well I think youll start to see.

<unk> talked about and my prepared remarks.

The AIG 200, while we announced run rate, we've got to catch up a little bit in terms of some of the implementations. So we know that we have expense.

<unk> and terms of.

What will be coming through with AIG 200, and addition to that just normal expense management and being very disciplined on reinvestment and making sure that we are of.

The company, that's very focused on ways in which we can improve what we're doing and create our own investment capacity I think youll start to see.

And the earned premium increasing from growth and strong new business International had the best quarter, New business that they've had since since the new teams arrived so theres a lot of momentum there and then expect to see new business pick up as well.

We continue throughout the year and the economy starts to recover and then what I also mentioned in my prepared remarks is that we are not going to need as much reinsurance going forward just based on the growth portfolio.

And so like we needed to probably buy a little bit more cash a little bit more and the risk side. Those are all improving and those will be tailwind over a period of time. So there's four of five components that will drive improved combined ratio and.

The subsequent quarters and into next year.

Next question please.

We'll hear from Brian showed that the K B W.

My other fields go ahead.

Okay.

Good morning can you hear me.

Yes, Michael.

Okay, Alright, so mark I'm trying to tie together a couple of upcoming because.

And if I understand correctly margin improvement into 2020.

We still get below the 90% on the underlying by year and so does.

And does that mean that we should expect to.

Be there sooner.

You won't need margin improvement later in 2022.

Below 90.

Let me start that Peter yes, good morning.

So I think what.

I think what we're trying to just say and various ways is that.

Looking sequentially.

Really not the way you've got to really look at the quarter over quarter for the points of the Peter brought out the before about the mix being pretty different the fact that although we've reduced the volatility dramatically, we still write volatile lines right.

You can still have a pop here or there.

May not have.

Really occurred in this quarter of the last quarter that debt.

Got it.

The other time, we really need the C. A few more accident quarters, if you will.

Pop and before we can declare victory and that so.

You can't look at each quarter as and totally independent standalone that with the portfolio.

Okay.

That makes sense the.

Second question I guess, you talked about type of rate increases and.

Don't know whether sort of.

The way, we typically think about the trend is relevant but is there any way you can.

Outline how cyber loss expectations are changing.

Dave do you want to take that.

Yes.

Thank you the.

The when we looked at <unk>.

Sometimes there's we index off of rate increases and in fact.

A big part of our story here.

And the AIG has actually been and risk selection and limit management, and Retentions and terms and conditions and cyber and cyber was this year's.

This year's case, the okay. It had been a profitable business ransomware started showing up and what we've done and as we've cauterize that with sub limits and co insurance to reflect the fact that we're a big primary player.

And we need to we need to manage ransomware and and that's what we've done and our renewal retention is come down our rate increase which maybe something sighted and exciting for others is up 40 gets 41%, but for us it's actually managing the risk on the other side.

So I look at that rate increase is a factor as opposed to are not only vertical and horizontal risk. It's a tough risk we havent worldwide for the leaders we have been very active in terms of our our prophylactic and our involvement in terms of trying to.

<unk> the actual loss itself.

And we look at that as a viable product that we have controlled horizontally with reinsurance and vertically.

Reinsurance and with partnerships and we look at that not only like every other specialty business that we have and this company. We have a lot of them we have to attack it and we have to underwrite it.

And with the with the facts of.

And of that business and and Thats what were doing it it should be.

It should scare of the industry. It certainly gives us pause and Thats why we have been underwriting it very aggressively over the last three years.

Thank you didn't think of that I think of it.

I think we have time for one last question.

The last question will come from Tom Gallagher with Evercore.

Thanks.

Peter just to.

The first a question on decision to pursue the IPO versus the private sale.

Was it mainly because we've gotten so much improvement and Pierre LNR of public valuations that the GAAP narrowed.

It wouldn't give you as much of the benefit but any any color you can give us as to what drove that decision. Thanks, Tom that is certainly.

One component, we always said the base case was going to be the IPO of 19, 9%. So when we add entertain some of the inbounds.

Terrific companies, we evaluated the relative merits of the sale of compared to the minority IPO, we took into account value creation execution certainty regulatory and rating agency implications the.

Delivery of life retirement growth strategy over the long term, where we're going to be making the right investments to make sure. We're getting the value of the 81 of the great business and so you would want to make sure that we are investing in it.

And so when we weighed all of those merits ultimately we felt that.

The IPO was going to fulfill.

And the value for our stakeholders and decided that that was the appropriate path for us.

Yes.

Okay. Okay. Thanks, and then my.

Just a follow up just a follow up.

For Kevin on on LNR.

Peter I think I heard you say, you're reiterating the 8% to 16 basis points spread compression guide.

I guess my question is interest rates have risen of pretty good amount.

Would you would you change within the 8% to 16 basis point band, where you expect the operator I think you used to say it was towards the high end of that.

Kevin do you want to finish.

Yes, absolutely, yes, yes, Tom.

<unk> moved from the high end of the 8% to 16, two towards the middle to the lower and.

Based on the recent improvement and.

And the yields you have the monitor obviously the combination of where credit spreads are versus where actual base rates are so it's not all of what we saw and the base rates theft and look at the total re investment position.

Alright, great. Thanks, everyone for joining us today and have a great day.

And with that ladies and gentlemen, and this will conclude your conference for today. Thank you for your participation and you may now disconnect.

Yeah.

And.

Okay.

[music].

Good day and walk of the Aig's first quarter of 2021 financial results Conference call. Today's conference is being recorded and this time I'd like to turn the conference over to the myth Zebra curtail head of Investor Relations. Please go ahead.

Thank you and good morning, and thank you all for joining US today's call will cover Aig's first quarter 2021 financial results announced yesterday afternoon, the news release and financial supplement and financial results presentation were posted on our website at www AIG Dot com and the 10-Q for the quarter it will be fine.

<unk> remarks may contain forward looking statements, including comments relating to company performance strategic priorities, including Aig's intent to pursue of separation of its life and retirement business the business.

This mix and market conditions and the effects of COVID-19 on AIG. These statements are not guarantees of future performance or events and are based on management's current expectations and.

The actual performance and events may materially differ factors that could cause results to differ include the factors described in our 2020 annual report on form 10-K, and our other recent filings made with the SEC AIG is not any under any obligation and expressly disclaims any obligation to update forward looking statements, whether as a result of new.

New information future events or otherwise and.

I'll now turn the call over to Peter.

Hello, and thank you for joining us today the.

This morning, I will start our call with the high level overview of Aig's consolidated financial results for the first quarter.

I will then review of results from General insurance and the significant progress we've made with our portfolio, which allowed us to pivot from remediation to growth heading into 2021.

Following that I will review first quarter results for life retirement, I will then provide an update on the work we're doing on the separation of life retirement from AIG.

And lastly, I'll provide an AIG 200 update.

Mark will give you more details on the financial results and then we will take questions.

AIG had an excellent start to the year.

And we have significant momentum across the entire organization and the first quarter, we delivered outstanding performance and general insurance we.

Saw continued solid results and life retirement.

We made meaningful progress on the separation of life retirement from AIG, and we significantly advance AIG 200, with the transformation of remaining on track to deliver $1 billion of savings by the end of 2022 against the cost to achieve of $1 3 billion.

In addition, our balance sheet and financial flexibility remain exceptionally strong, allowing us to focus on profitable growth across our portfolio pruning.

Prudent investments and modern technology and digital capabilities.

Separating life retirement from AIG and amount of that maximizes value for our stakeholders and positions both companies for long term success and returning capital to our shareholders when appropriate.

As you saw in our press release, our adjusted after tax income and the first quarter was $1.05 per diluted share compared to 12 and the prior year quarter.

We ended the first quarter with current liquidity of $7 9 billion.

And we repurchased $92 million of common stock in connection with warrant exercises and an additional $270 million against the $500 million buyback plan, we mentioned on our last call.

We expect to complete the additional $230 million of that buyback plan by the end of the second quarter.

This 22% increase and global commercial was driven by higher Retentions excellent new business production, particularly in international and strong performance and first quarter portfolio repositioning and continued rate momentum.

North America commercial net premiums written grew by approximately 29% and outstanding result, due to a variety of factors, including increased one one writings of Validus re <unk>.

Continued strong submission flow and lessons and rate improvement strong retention and higher new business and segments, we have been targeting for growth.

In addition, as a result of the improved quality of our North American commercial portfolio and our improved reinsurance program, which now includes lower attachment points and North America, we did not need to purchase as much cat reinsurance limit and 2021, the benefits of which will come through in the future quarters.

Looking ahead, we expect overall growth and net premiums written for the remainder of 2021 to be higher than the 6% we saw and the first quarter of this year with more balanced and growth across our global commercial and personal portfolios.

With respect the rate momentum continued with overall global commercial rate increases of 15%.

North America commercial rate increases were also 15% driven by improvements and Lexington casualty with 36% rate increases excess casualty with 31% rate increases and financial lines with rate increases over 24%.

International commercial rate increases maintained strong momentum at 14% and the first quarter of 2021, which is typically the largest quarter of the year for our European business.

These increases were driven by energy with 26% rate increases commercial property with 19% rate increases and financial lines with 20% rate increases.

Adjusted for these impacts global personal insurance net premiums written were down only one 6% on and FX constant basis.

And a full year of reinsurance sessions relating to the relating to syndicate 2019 will be complete.

We are very pleased with the continued improvement and our combined ratios, including and excluding cash.

Don't need to remind everyone, where we were when I outlined our turnaround strategy three years ago.

The adjusted accident year loss ratio improved 160 basis points to 59, 2% driven by a 330 basis point improvement and global commercial.

The expense ratio improved 150 basis points, reflecting the impact of AIG, two hundred's savings and continued expense discipline.

We expect to continue to improve the expense ratio of throughout 2021, particularly as we deliver on our AIG 200 programs.

To provide further color on combined ratio improvements and North America. The adjusted accident year combined ratio improved to 95, 6% of 210 basis point improvement year over year.

And this reflects a 370 basis point improvement and the North America commercial lines of adjusted accident year combined ratio, which came in at 93, 9%.

And international the adjusted accident year combined ratio improved to 92% of 340 basis point improvement year over year.

Yes.

With respect to catastrophes first quarter 2021 was the worst first quarter for the industry and over a decade in terms of weather related cat losses, largely due to winter storms in Texas.

Net cat losses, and general insurance of $422 million, primarily driven by the Texas storms and do not include any new COVID-19 related estimated losses for the first quarter.

Now, let me touch on reinsurance assumed as I noted of Validus re saw strong one one renewals across most lines with attractive levels of risk adjusted rate improvement.

The team focus on prudent capital deployment and portfolio construction, while improving the technical ratios and reducing volatility.

<unk>, which were and the high single digits.

Before moving on I want to highlight the quality and the strength of our general insurance portfolio.

And of course optimization work will continue.

These are a couple of concrete examples of how we have repositioned the global portfolio.

Gross limits and global commercial will reduce by over $650 billion.

North America excess casualty removed over $10 billion and lead limits and increased writings and mid excess layers and order to achieve a more balanced portfolio.

And in Lexington, we repositioned this business to focus on wholesale distribution and.

The team grew the top line and 2020 for the first time and over a decade the <unk>.

Portfolio is now more balanced and the submission flow has increased over 100% the last couple of years.

The enormity of the turnaround and the complexity of execution that was accomplished cannot be understated.

We now have a disciplined culture that is grounded and underwriting fundamentals of well defined and articulated risk appetite, we remain laser focus on terms and conditions and obtaining rate above loss cost.

And we have and appropriate reinsurance program in place to manage the severity and volatility.

Our global portfolio is poised for improving profitability and more predictable results.

And <unk>.

Turning to life retirement first quarter of this business also had strong results adjusted pretax income and the first quarter was $941 million and adjusted return on common equity was 14, 2%, reflecting our diversified businesses and high quality investment portfolio.

Our high quality of investment portfolio is well positioned to navigate uncertain environments as demonstrated by our steady performance through the macroeconomic stress and the high levels of volatility and 2020.

And our variable annuity hedging program has continued to perform as expected.

Providing offsetting protection during periods of volatile capital markets.

With respect to the separation of life retirement from AIG, we continue to work diligently and with the sense of urgency towards an IPO of up to 19, 9% of the business we.

We've made significant progress on several fronts, including preparing standalone audited financials, and having an independent party conduct a thorough actuarial review no concerns have been raised about life retirement portfolio as a result of this work.

As I noted on our last earnings call. We did receive a number of credible inquiries from parties interested in purchasing of minority stake and life retirement, and our investment and management group, we conducted a robust evaluation of those opportunities to determine if they offered a better long term outcome for our stakeholders.

Then and IPO.

At this time, we believe and IPO remains the optimal path forward to maximize value for our stakeholders and to position the business for additional value creation as a standalone company.

In addition, and IPO allows AIG to retain maximum flexibility regarding the operations of the business as well as the separation process overall I am pleased with the progress we've made.

Turning to AIG 200, all 10 operational programs are deep into execution mode. Our.

Our transformation teams continued to perform exceptionally well despite the continued remote work environment.

The recent progress on it modernization has enabled us to reach the halfway point or $500 million of our run rate savings target of two.

$250 million and cumulative of one raise savings has been realized and <unk> through the first quarter of this year with $75 million of incremental savings achieved within the first quarter income statement.

Key highlights on our progress include the.

And the successful transition of our shared services operations and over 6000 colleagues to Accenture at year end 2020.

This partnership is going extremely well with kpis at or better than pre transition levels.

We also negotiated of multiyear agreement with Amazon Web services to execute on and accelerated cloud strategy.

As a significant step forward and modernizing our infrastructure.

Before turning the call over to Mark I want to thank our global colleagues for their resilience and excellent support of our clients policyholders distribution partners and other stakeholders the.

The last year, and particular brought unimaginable stress and tragedy across the world.

And for our colleagues that came during a time of significant and foundational change yet.

<unk> I am confident AIG is on its way to becoming a top performing company and everything that we do with that I will turn the call over to Mark.

Thank you Peter and good morning, everyone.

The segment common equity for general insurance and of 14, 2% adjusted return on the segment common equity for life and retirement.

Now moving to general insurance first quarter adjusted pre tax income was $845 million up $344 million year over year, primarily reflecting increased underwriting income and international as well as increased global net investment income driven by alternatives.

Catastrophe losses totaled $422 million pre tax of $7 three loss ratio points this quarter compared to the $6 nine loss ratio points and the prior year quarter. The cat losses were mostly comprised of $390 million related to the winter storms, primarily impacting commercial lines, including AIG right.

The net impact of the winter storms and reflect the benefit of our commercial reinsurance program and changes to our PSEG portfolio as the result of Syndicate 2019.

Overall prior year development was $56 million favorable this quarter, which included $58 million of net favorable development and North America, driven by 52 million of favorable development from the ADC amortization and.

And 2 million of net unfavorable development in international.

It's worthwhile to note that general insurance they'll have $6 6 billion remaining of the 80% quota share ADC cover.

There was also embedded within these figures $33 million of unfavorable development related to COVID-19 claims that relate back to 2020 loss occurrences or of movement of less than 3% emanating, primarily from Validus re and Talbot, our Lloyd's syndicate.

Our general insurance business continued to materially improve driven largely by strong accident year 2021, ex cat showings and both North America and.

And the international commercial lines.

So rather than double up on facts that Peter has shared the main drivers of the Attritional underwriting gain improvements where for North America commercial Lexington financial lines and excess casualty and from the international commercial the main drivers of improvement stemmed from property Talbot.

And financial lines.

As Peter noted on our global commercial lines basis, the accident year combined ratio, excluding cat was 94%, which represents a 440 basis point improvement over the prior year's quarter with 75% of that improvement attributable to a lower loss ratio and 25% of the improvement attributable to a lower <unk>.

The expense ratio.

Turning to personal insurance, starting in second quarter of this year, meaning next quarter, our year over year comparisons will begin to improve given the timing of the initial COVID-19 impacts and the formation of the syndicate 2019 and May of 2020.

Although north American personal lines had a 74% drop and net premiums written as Peter highlighted it's also important to understand that the other units within the segment, which represented nearly 50% of the quarter's net earned premium is comprised mostly of warranty and personal and A&H business and their net.

Premiums only fall marginally.

Our international personal lines business, which by size and dominate our overall global personal insurance business continues to perform well with 150 basis points improvement and the accident year ex cat combined ratio, reflecting an improved loss ratio and expense discipline.

Now to expand on some of the Peter's marketplace commentary.

Areas areas continue to accelerate the adequacy of achieved the rate beyond that of prior quarters for example.

And the level of excess casualty rate increases continues and the many units exceeds the prior results such as cat excess coverage out of Bermuda.

North America, corporate and national admitted excess and.

And the Lexington the.

The increase achieved and the first quarter of 2020, and compounded and the first quarter of 2021 of the loan ignoring prior to 2020 rate increases exceeded 150% per Bermuda based capacity business, which makes sense given recent years' price the efficiency on these capacity excess layers and of <unk>.

Approximately 115% per the other mentioned units.

U S financial lines on the same compound basis has seen an excess of 80% increases for the staples of D&O and <unk>.

Internationally, the 14% first quarter of overall rate increase saw continued great expansion in key markets such as the U K at plus 23% global specialty at plus 15% Europe and the middle East at 14% Latin America at 13%.

Net and Asia Pacific also at 13% when excluding the tempering influence of predominantly Japan at 3%.

And lastly, ciber achieved our highest rate increase yet at 41% for the quarter.

These increases are clearly broad based by region and line of business all around the world.

I would now like to spend the few minutes and two observations one.

And the impact of net rate change versus growth rate change and to some examples of new business rate advocacy relative to a renewal rate adequacy. So first.

Our achieved North America commercial rate change for the quarter on a net basis is now estimated to be at least the 150 basis points stronger than the corresponding growth rate change largely due to our increased net positions across selected product lines.

Last year much of the achieved growth rate increase was being ceded to reinsurers, where now there is much less so.

The shift to higher net positions resulted directly from our prior stated strategy of improving the gross book such that we had increased confidence and to retain the appropriate amount of net and.

And because we could not take a higher net position previously because of the legacy imbalance of very large limits written.

Now moving onto relative rate adequacy, we see continuing as the indications in North America of new business, having stronger relative rate adequacy of our renewal rate levels in most lines of business.

This likely doesn't reflect the different class mixes, but instead and additional margin for a lesser known exposure. However.

A further related item involves the renewal retention.

And as general insurance implemented revised underwriting standards renewal retention predictably would have been impacted especially and the target lines now even with superior risk selection rate and term and condition changes that have been achieved renewal retentions have improved to the mid 80% and the agri.

Again across all commercial lines, and both North America and across the internationally.

We also see improvement and the Lexington, where E&S has lower industry retention is based on the nature of the business and this is very positive for the book and we see it across specialty lines and across most of admitted retail book. This is indicative of the re underwriting actions being successful having set of.

<unk> down and now with general insurance being comfortable with the underlying and short exposures that meet our risk appetite.

Based on current market conditions, and our view of the foreseeable future. We continue to anticipate earned margin expansion throughout 2021, and then into 2022, resulting from Aig's favorable underwriting actions taken favorable global market conditions materially improve terms and conditions.

And a more profitable less volatile business mix.

As a result, I would like to reconfirm our outlook for of sub 90% accident year combined ratio, excluding cat by the end of 2022.

Global commercial lines are very nearly at the sub 90% level now and global personal lines is running at 96% and the first quarter, given our portfolio composition the market conditions and our strategic repositioning of North America personal we anticipate greater continued margin.

Expansion and within commercial lines and personal lines.

We are highly confident that we will achieve our sub 90% target and have several paths to help us get there some buy of mix some by a reasonable market conditions persisting and some via expense levers.

Now I'd also like to unpack some of Peter's high level net written premiums growth comments for 2021 with an emphasis here on next quarter second quarter.

North America commercial is expecting the seat growth of approximately 10% for the second quarter of 2021 relative to the prior year quarter, driven mostly from Lexington across a host of the product lines and the admitted casualty both primary and excess.

This growth will be two pronged.

As growth on the front and will be coupled with lower reinsurance sessions.

Especially from those lines subject of the casualty quota share.

North America personal is expected to see significant second quarter 2021 growth, but it is driven by the syndicate 2019 reinsurance session change that we've been signaling.

Repeatable and the second quarter of 2021, we will give the appearance of considerable growth, but instead, we will provide a PC G. Net premiums that is more stable on an ongoing basis. So.

Overall for North America, both personal and commercial combined we anticipate net written premium growth between 35% to 40% for the second quarter over the second quarter of the prior year.

Now turning to life and retirement adjusted pretax income increased by 57% or $340 million compared to the first quarter of 2020 with favorable equity markets driving higher private equity returns and lower deferred acquisition cost amortization, a rebound in most areas of sales.

And the higher fee income the increase also reflects favorable short term impacts from tighter credit spreads driving higher call and tender income and higher fair value option bond returns.

This increase was partially offset by adverse mortality as U S. COVID-19 related population deaths of approximately 205000 and the first quarter were higher than our earlier anticipated, which was also reflected and our own experience.

In terms of premiums and deposits, we continued to see encouraging improvement and retail sales individual retirement premiums and deposits grew 8% from the prior year quarter, which we consider of pre COVID-19 quarter as the sales pipeline carried through March of last year with index and variable annuities, both exceeding prior year led.

And group retirement.

<unk> group acquisition deposits increased significantly from prior year, although both periodic and non periodic deposits declined leading to a marginal reduction and overall growth group premiums and deposits of two per cent.

And life insurance premiums and deposits grew 6% overall with year over year growth and both the U S and the international.

Finally, while institutional markets did not conclude any significant pension risk transfer transactions and the quarter the pipeline of direct and reinsurance transactions going into the second quarter is very strong.

Typically with many defined benefit plan nearing fully funded status.

Turning to net flows and related activity our portfolio our portfolio reflects the dynamic environment quarter by quarter of the last year and individual retirement net flows improved by approximately $1 billion over the first quarter of 2020, driven by variable annuities and retail mutual funds and yet.

And when excluding retail mutual funds net flows were positive led by index annuities rebounding to be plus $1 billion for the quarter, which is virtually identical to one year ago, but with steady progress from a low of $439 million and the second quarter of 2022, the plus $1 billion this quarter. So.

And the rate were up slightly over the last few quarters within individual retirement for fixed and index, whereas variable annuity surrender rates had been more comparable as have for group retirement. Similarly, the life business has seen consistently lower lapse and surrender rates over the last four quarters and prior.

Life and retirement continues to actively manage the impacts and the low interest rate and tighter credit spread environment.

And the previously provided range for expected.

And Youll spread compression is not changed new business margins generally remained within our targets at current new money returns due to active product management disciplined pricing approaches and our significant asset origination and structuring capabilities.

Moving to other operations adjusted pre tax loss was $530 million, which was inclusive of about $176 million of losses from the consolidation and the eliminations line, which principally reflects adjustments offsetting investment returns and the subsidiaries by being eliminated and other operation. So it wouldn't be double counting.

Before consolidation and elimination of adjusted pre tax loss was $354 million, which was $481 million better than the first quarter of 2020, which included the $317 million adjusted pre tax loss related to fortitude and a $30 million onetime cash grant.

And given to employees to help with unanticipated costs when the global pandemic began last March.

The first quarter also reflects lower corporate interest expense and lower corporate general expenses and we expect this to continue throughout 2021.

However, one might expect some continued volatility within the consolidations of the eliminations line, which can fluctuate based on investment returns.

Now shifting to investment net investment income on and <unk> basis was $3 2 billion or $492 million higher than the first quarter of 2020.

More than offset the lower income on the FX fixed income portfolio. We continue to have a high quality investment portfolio that is positioned well under any market conditions.

Turning to the balance sheet at March 31 book value per common share was $72 37.

Down five 3% from year end, reflecting net unrealized mark to market losses on the investment portfolio adjusted book value per share was $58 69.

Up nearly 3% from December 31 at.

At quarter, and AIG parent as Peter noted had cash and short term liquidity assets of $7 9 billion and we repaid our March debt maturity of one 5 billion and repurchased the $362 million of shares as Peter outlined our GAAP debt leverage at March 31 was 28, 4%.

Flat to year end, given the downward fixed income market movement negatively impacting the OCI. Despite the repaid debt maturity mentioned earlier.

Our primary operating subsidiaries remain profitable and well capitalized for general insurance, we estimate the U S pool fleet the risk based capital ratio for the first quarter. The beat between 465, and 475% and life and retirement fleet is estimated to be between 400 <unk>.

35, and 445%, both well above our target range of and.

And that I'll now turn it back over to Peter.

Thank you Mark and of Jake I think we're ready to start Q&A.

Yes, ladies and gentlemen, if you would like to ask a question you can simply by pressing star one on your telephone keypad and just keep in mind, if you're using your speakerphone and make sure. Your mute function is released to allow you to reach of our equipment.

Once again star one for questions.

And we will begin with Elyse Greenspan with Wells Fargo.

Hi, Thanks. Good morning. My first question is on the I'm, sorry, the likely requirement and separation.

I appreciate the update in terms of working towards the IPO.

The plan in terms of timing for that yet still take place at some point later of the here how much do you have a part and more finer tuned around that.

Yes, Thanks Elyse.

As a sudden and my prepared remarks, we're working with the sense of urgency on the IPO. We've made really significant progress working on Standalone financial statements actuarial have setup.

The organization to operationally separate so we're working very hard on several fronts related to the IPO and the ultimate timing of completing the step.

And this would depend on a number of factors some of our out of our control such as regulatory and market conditions.

But we're still.

Working towards the same timeline, which is by the end of 2021, but again, depending on those factors that can always slip into the first quarter 2022, but the company is focused.

And we're going through all the details and moving forward.

Okay and then my second question.

On the market commentary you guys gave a lot of helpful color.

Mark you said that you guys expect continued margin.

Margin expansion and throughout 2021 and into 2022.

The way.

I guess, you're kind of giving that the market. It sounds like for the next year and the expectations that we would.

Stabilized and get closer to the trend in 2022 and just.

And to put that together and you just kind of giving us the outlook.

Strong through 2021, and then we'll see all of 2022 of the transpires with earned birthday about loss trends.

Let me start with your question on rate and then I'll turn it over to Mark to provide a little more context, and then talk about the earned but.

And I think look and this is the third year, where we're seeing right at least that and.

At AIG above loss cost and again, you really have to just take a look at the overall portfolio because for the quarter and maybe a little bit different.

Meaning just the seasonality of our business one of theirs Validus re having a big and such a day and the first quarter crop specialty Europe, driven more towards the first quarter. So when we look at it we're looking at first quarter. The first quarter and there has been no slowdown in terms of the rate environment and believe that we are building mark.

And above loss cost rate on rate and I think thats kind of where mark was alluding to the.

The market environment of lease always hard to predict but we think the market that we're in as the market, we're going to see for the remaining part of the year and it's very hard to predict the beyond that Mark do you want to add any more context.

The bit thank you Peter.

Peter nail that both of the at least I want to reemphasize, though.

Peter said every quarters the mix is pretty different and I know that's of written viewpoint that debt.

And then but.

But we've already written.

The business and.

And that we can last year and it's going to earn at the 2021 and we've already written one quarter, that's going to go into 2020 two so we're not counting.

We believe we're going to of the margin expansion.

And as the noted that doesn't really depend on the existing.

Level of.

And our rate levels and the markets.

Okay. Thanks for the color. Thanks next question please.

Next question will come from Brian Meredith with UBS.

Yes. Thanks, So a couple of here quickly.

I'm curious you said you had some COVID-19 development of the quarter, where did that come from it and are we pretty close to that you think kind.

It being done with the COVID-19 related losses at least in the and the general insurance business I understand there could still be some more of life.

Go ahead Mark.

And so yeah, we can localize a lot of that to contingency business out of the Talbot.

And the outlets I think that was really just the two.

Two contracts involved so it's not like it was widespread and anyway. So.

Net overwhelmingly accounts for it and.

And I think for your second question, Yes, we didn't put any additional provisions where we're happy where we are associated with it. So I think we're on the the downslope sales.

And the lease.

Got you and then my second question I guess for Peter for both your what is your kind of view with respect to.

Loss trend or kind of tort inflation and loss trend as we kind of the economy reopens here of course reopen kind of.

How are you thinking about that.

From a reserving perspective, and maybe also from a pricing perspective.

Yes, I'll have Marc.

Add to my comments, we're watching it very carefully Brian.

It's something that again as it emerges throughout the world as the economy starts to reopen.

We look at it.

Line of business by line of business lead versus excess.

Different trends that we're seeing and the portfolio.

The emerging over the last year and then how we forecast that to look for the futures I think the balance of the portfolio is being shaped and in a way to mitigate that and we're very focused on making sure that even and the growth that we outlined in the first quarter that we're growing where we.

Know that we're going to get and the risk adjusted returns.

In terms of deploying the capital. So I think we're very disciplined it's circular with underwriting actuarial claims we're learning a lot and making sure that we're positioned the portfolio. Accordingly, Mark do you want to add anything to that.

Thank you Peter I think I may of comment on this before but I think it's probably worth bearing again long term there has generally been of 200 basis points.

Addition, beyond the economics of insulation for social isolation clear.

Clearly that's been south of that.

Over the last few years, but that's one way of looking at it by having a range of loss trends and not.

Necessarily just point estimate and it really varies by line of business clearly.

I think in the past I've also commented that our loss trend and excess casualty for example is very close to double digits.

The number one and so it really it varies across the board and when you get to.

Peters comment on portfolio think of the best way to insulate yourself from unexpected spikes and economic or social inflation irrespective of which one.

Is by having the portfolio change and the the.

The mix away from lead and having more mid access and not just and casualty, but other places aggregate and Lee moves that portfolio further away from risk insulating you more from any of.

Compound of use of that so I think I think that's how we look at it and I think all of that is important and that comes to bear.

Yes, Michael I would just.

The part of my question, though is also asking is do you think about when you make reserve assumptions you pick assumptions are you, making different assumptions with respect to what the potential loss trend and one of your pricing the business.

Okay.

And.

Not materially because you have islander year of.

Right so.

Claims when they are settled or when the reported don't care what their accident year loss.

Gotcha.

Okay. Thank you.

Thanks, Brian.

Next question and I'll hear from Paul Newsome with Piper Sandler.

Good morning, and.

Congratulations on the quarter.

I was hoping you can turn to maybe a big picture question about the life insurance business.

And it just is there kind of a path.

The positive net flows.

Obviously the.

The.

The institutional business is volatile quarter to quarter, but.

Maybe you could just give us a sense of especially as we get closer to thinking about the life of IPO.

How does the net flows might look like.

Overdue of positive model.

Okay. Thanks, Paul Kevin.

Yes. Thanks.

Paul.

The net flows reflect the trends of premiums and deposits as against the surrender behavior as Mark pointed out we haven't really seen much material change and the surrender behavior, a little bit within sort of expected margins, but premiums and deposits and Australia and other story and we said that the second quarter last year was going to be the low water.

The market certainly was and in fact, the first quarter of this year is one of the largest sales quarters, we've had and the individual businesses. Since we created Aig's financial distributors and while the month of January was actually still below last year and we consider last years first quarter, a pre COVID-19 quarter.

<unk>.

And because really the pipelines where flow right through March April.

And we saw growth from February over January March over February.

A pretty significant growth. So the end of the quarter were really bad debt, what we'd consider to be normal run rates for that business and as Mark pointed out both index and variable annuity very strong for us there.

And so the one line of business fixed annuities, there a little bit lower than historical levels, but we also saw recovery and fixed annuities towards the end of the quarter.

And so we're feeling optimistic about the forward.

And curve for the individual business and as Mark pointed out across annuities.

And because we've announced relative to the retail mutual funds right. We had positive flows.

So I'm confident relative to the flows and the individual retirement business.

The group retirement that's.

A little bit of a different story.

The group acquisitions, the new group acquisitions actually worse, one of our strongest quarters and increased by $150 million over the prior year.

Whereas periodically we're down about $50 million and I think that reflects furloughs and people, leaving the workforce.

And then the non periodically we're also down a little bit for <unk>.

The of reasons and and the group retirement business, we still see some modest negative flows, but I think that reflects the fact that we're a small and medium sized plan provider and and.

And the consolidation that continues to go on and health care and we do see some of that.

Large case consolidation.

But the assets under management of continued to grow obviously supported by equity markets and Thats, an important base of earnings for the fee side of the of the business. So we feel confident we're being careful about capital deployment and we're seeing conditions improve.

And our diverse product range and channel allow us to be careful where we deploy the <unk>.

Capital and we're seeing we're seeing that start to come through and the first quarter.

Is there a market component to earn interest rate component to keeping the Roe.

The stable in the life business.

And Europe.

Well, certainly and we provide the sensitivities and depending upon where equity markets are where interest rates are where credit spreads are and which way, they're going and they have of kind of a short term.

Packed on earnings volatility, but we price our products.

To make sure that we're making our returns based on.

Broadly expected market conditions, not necessarily of single deterministic scenario. So we're not relying on market returns and necessarily and the pricing of our products.

Thanks, Paul.

Thanks next question.

Next question will come from Ryan Tunis with autonomous research.

Hey, Thanks, Thanks, and good morning.

And one for Mark and would even be interested and David sorts of who's on the call but.

I guess thinking about classic economic inflation.

Wage driven historically.

It's been kind of bad for workers' comp and it's been a long time since we've had it.

Are the risks from that type of scenarios on that line kind of still the same as they were 20 years ago are the mitigating factors just how are you thinking about.

Workers' comp if we do have.

Just the normal inflationary economic cycle.

Let me start.

You got to remember that two thirds of our business is on high Retentions and so.

And the fluctuation of frequency and and wage inflation and loss cost inflation is largely retained by our clients. So we've seen some fluctuation just because of the higher attachment points, and which we have and the workers' comp book and so the.

Good day has been working really hard on our large account business and well as well as workers' compensation in terms of the positioning of that and I think the attachment points. The positioning of the book is really important day. If you wanted to talk a little bit about the what youre seeing and the marketplace and how we are reacting to it.

Yes, Thank you Peter the.

And I think workers' comp I think there was some concern with COVID-19 that there would be presumption that mostly does not affect our book, Okay because of the high Retentions and our clients have that's very different.

And in the middle market books, and the and the small commercial books that might exist I think the.

The more illuminating issue is that workers' comp has been a profitable line.

Whether it was the state.

The state loss that mute of debt and often we get lost and our generalization of what is rate increase workers' comp has had.

Modest to two negative rate increase because its been profitable for the industry and and I think it's very important for everybody and understand that that that's a discrete market and.

And a lot of the different parts of the market that we trade and.

And that's absorbed by our clients so the.

And he talks about it and in terms of the the rate increase but that's that's a discrete tight market debt reflects that and I think our industry is fairly sophisticated to understand why that happens and then why other businesses need rate or need rate to expect to reflect the exposure.

Yes.

It's.

That's the workers comp market and it's been a winner for the us industry because of the.

And the reforms that happened at the state level.

Yes.

Hey, Brian.

Just one quick thing if I could have you really started the questions and the correlation of on wage and given peer really talking about two thirds of the book is really loss sensitive over high attachment points its actually more of a medical question.

And then a wage identity a question.

Because medical.

<unk> is what could sneak over especially on major of permanent parcels.

And of that nature and permanent total so that's why it was actually a.

We are and it really good position on that because of the analysis that was done about three years ago on that book, that's still holding today.

So all.

All of those past the assumptions are absolutely holding.

Understood and then.

And my follow up and just thinking about you're running at a little bit over 92. So you need about two points to get sub 90, just listen to the rate of loan.

And assuming we would be able to get you. There obviously I think that there are some offsetting headwinds or <unk>.

Just other things that.

Along the way you got to get past I'm not sure if that's more new business and what could you just remind us of some of.

Offsets to rate and terms of getting down to about 90 of the next couple of years.

Thanks, Brian.

So theres multiple.

Factors in terms of driving the sub 90 combined ratio. One is we had a terrific start to the year and so you can see we're driving top line growth.

Driving margin improving combined ratio so we like.

And the momentum that we have I think we're going to focus on and continuing on the underwriting side certainly the culture, we're building out.

Risk selection and terms and conditions, making sure that we're getting rate above loss cost is the discipline that day to driving through general insurance.

And they are doing very well I think youll start to see.

<unk> talked about and my prepared remarks.

The AIG 200, while we announced run rate, we've got to catch up a little bit in terms of some of the implementations. So we know that we have expense.

Tailwind in terms of.

What will be coming through with AIG 200, and addition to that just normal expense management and being very disciplined on reinvestment and making sure that we are a company that's very focused on ways in which we can improve what we're doing and create our own investment capacity I think youll start to see.

And so like we needed to probably buy a little bit more cash a little bit more and the risk side. Those are all improving and those will be tailwind over a period of time. So theres four of five components that will drive improved combined ratio and the subsequent quarters and into next year.

Next question please.

We'll hear from Brian Shields of the K B W.

My other fields go ahead.

Uh huh.

Okay.

Good morning can you hear me.

Yes, Mark.

Okay, Alright, and so mark I'm trying to tie together a couple of comments because youre expecting if I understand correctly margin improvement into 2020, but we still get below the 90% on the underlying by year and so.

Does that mean that we should expect to be there sooner.

You won't need margin improvement later in 2022 to.

And you get below 90.

Okay.

Let me just start that Peter and good morning.

So I think what.

I think what we're trying to say and in various ways is that looking sequentially is really not the way you've got to really look at the quarter over quarter for the points of the Peter brought up before about the mix being pretty different the fact that although we've reduced volatility dramatically we still write volatile lines right. So you still have a per.

Pop here, there that may not have.

Really occurred in this quarter of the last quarter that that's still good.

And another time, we really need to see a few more accident quarters. If you will.

And pop and before we can declare victory and that sets. So.

And you can't look at each quarter as and totally independent Standalone other sequentially.

Okay.

That makes sense.

Second question I guess, you talked about the type of rate increases and I.

And I don't know whether sort of of the way. We typically think about trend is relevant but is there any way you can outline how cyber loss expectations are changing.

Dave do you want to take that.

Yes.

Thank you the.

The when we looked at.

Sometimes there's we index off of rate increases and in fact.

A big part of our story here.

And the AIG has actually been rich and Watson and limit management, and Retentions and terms and conditions and cyber and cyber was this year's.

This year's case the okay.

It had been a profitable business ransomware started showing up and what we've done and as we cauterize that with sub limits and co insurance to reflect the fact that we're a big primary player and.

And we need to we need to manage the ransomware and and that's what we've done and are our renewal retention is come down our rate increase which maybe something sighted and exciting for others is up 40 gets 41%, but for us it's actually managing the risk on the other side so.

So I look at that rate increase is a factor as opposed to are not only vertical and horizontal risk. It's a tough risk we havent worldwide, where leaders we've been very active in terms of our our prophylactic and our involvement in terms of trying to <unk>.

Stemmed the actual loss itself and.

And we look at that as a viable product that we have controlled horizontally with reinsurance and vertically.

The reinsurance and with partnerships and we look at that not only like every other specialty business that we have and this company. We have a lot of them we have to attack it and we have to underwrite it with.

And with the with the facts of.

Of that business and and Thats what were doing it it should be.

It should scare of the industry. It certainly gives us pause and Thats why we have been underwriting it very aggressively over the last three years.

Thank you didn't think of that I think of it.

I think we have time for one last question.

And that last question will come from Tom Gallagher with Evercore.

Thanks.

Peter just to the first a question on decision to pursue the IPO versus the private sale.

Was it mainly because we've gotten so much improvement and Pierre LNR public valuations that the GAAP narrowed.

Wouldn't give you as much of a benefit but any any color you can give us as to what drove that decision. Thanks, Tom that is certainly.

One component, we always said the base case was going to be the IPO of 19, 9%. So when we add entertain some of the inbounds from.

Terrific companies, we evaluated the relative merits of the sales compared to the minority IPO, we took into account value creation execution certainty regulatory and rating agency implications the.

Delivery of life retirement of growth strategy over the long term and we're going to be making the right investments to make sure. We're getting the value of the 81 of the great business and so you would want to make sure that we are investing in it.

And so when we weighed all of those merits ultimately we felt that.

And IPO was going to fulfill.

And the value for our stakeholders and decided that that was the appropriate path for us.

Okay. Okay. Thanks, and then my.

Just a follow up just a follow up.

For Kevin on on LNR, I think Peter I think I heard you say, you're reiterating the 8% to 16 basis points spread compression guide.

I guess my question is interest rates have risen of pretty good amount.

Would you would you change within the 8% to 16 basis point band, where you expect to operate I think you used to say it was towards the high end of that.

Yeah.

Kevin do you want to finish.

Yes, absolutely, yes, yes, yes, Tom.

Have moved from the high end of the eight to 16, two towards the middle to the lower and <unk>.

Based on the recent improvement and.

And the yields you have the monitor obviously the combination of where credit spreads are versus where actual base rates are so it's not all of what we saw and the base rates have to look and the total reinvestment position.

Alright, great. Thanks, everyone for joining us today and have a great day.

And with that ladies and gentlemen, and this will conclude your conference for today. Thank you for your participation and you may now disconnect.

Q1 2021 American International Group Inc Earnings Call

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