Q1 2022 American International Group Inc Earnings Call

May 4, 2022

Ladies and gentlemen, please standby.

And welcome to Aig's first quarter 2022 financial results Conference call. Today's conference is being recorded and now at this time I would like to turn the conference over to Quentin Mcmillan. Please go ahead.

Thanks, very much Jake.

Good morning. Today's remarks May include forward looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based on management's current expectations Afg's filings with the SEC, including our annual report on the Form 10-K and quarterly reports on Form 10-Q provide details on important factors that could cause actual results or events.

To differ materially.

Except as required by the apical applicable securities laws AIG is under no obligation to update any forward looking statements if circumstances for management to estimate or opinions for games. Additionally, todays 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.

All of which are available on our website at www Dot AIG dot com with that I'd now like to turn the call over to our chairman and CEO Peter Zaffino.

Good morning, and thank you for joining us to review, our first quarter financial results.

Pleased to report that AIG had an excellent start to 2022.

We are successfully executing on several strategic operational and financial priorities and our team has significant momentum on many fronts, which we believe will continue throughout the year.

Following my remarks, Shane will provide more detail on our financial results and then we will take questions Mark Lyons, David Mcelroy and Kevin Hogan will join us for the Q&A portion of today's call.

Today I will cover four topics first.

I will outline the tremendous progress we've made towards the separation of our life and retirement business, which will be renamed Corbridge financial.

<unk>.

I will review the excellent first quarter performance of General insurance, where we continue to drive top line growth, particularly in global commercial and saw meaningful improvement in underwriting profitability.

Third I will cover life retirement financial performance. This business remains a meaningful contributor to our overall results and fourth.

I'll provide an update on our capital management strategy, particularly as to stock buybacks, which we plan to accelerate over the course of 2022, given our positive view of Aig's future over the near medium and long term.

Before I turn to these topics I'd like to discuss the situation in Russia and Ukraine.

It goes without saying that what is happening is heartbreaking.

Ukrainian people are experiencing unimaginable pain, and suffering and it's our hope that a peaceful resolution will be achieved.

With respect to the insurance industry, we have not seen a situation like this in modern times. It presents a unique set of circumstances that make any exposure or coverage analysis complex.

Let me start by commenting on what we saw at AIG in the first quarter and what we did with a few claims that were submitted.

The claims we received were largely reported under political violence or political risk policies.

While the amount of information included in the claims was limited.

We did reserve, our best estimate of ultimate losses, including <unk>.

While we know it will take time for the full impact of the Russia, Ukraine situation to emerge based on the work we did in the first quarter to analyze our exposures and review known claims we do not believe the impact will be material to AIG and in the event of losses, we have multiple reinsurance programs available.

With respect to the industry more broadly there's not been much discussion so far in this earnings season regarding what the Russia, Ukraine situation means so I thought I'd spend a few minutes on the complexity that it presents.

As a starting point it is important to bear in mind that standard property and energy policies issued to the types of insured most likely to have suffered losses due to the conflict typically contained broad exclusions for losses arising out of war and other hostile acts.

In instances, where affirmative coverage has been provided for losses that would typically fall within the scope of these exclusions. The most relevant coverages relate to policies such as political violence political risk and trade credit aviation and marine.

Now I'd like to spend a few minutes on aviation because it's the topic that has received the most attention over the last 30 to 45 days.

Aviation is similarly complex and it will take time before all the relevant facts and resulting coverage implications fully emerge.

Let me start with what we know we know that aviation policies can be issued to both airline operators and airlines leasing companies and typically provide separate coverage for on the one hand losses caused by war perils, such as nationalization and confiscation and on the other hand losses caused by non war perils.

We also know that the invasion of Ukraine first occurred on February 24th and there were sanctions issued by the U K and the EU on February 26th which have since been updated.

These sanctions generally required airlines lessors to cancel leases with Russian airline operators and gave them a brief period in which to do so.

Additionally, we know that there was an aircraft re registration law passed in Russia on March 14th which permitted Russian airline operators to re register aircraft leased from Western Lessors on the Russian aircraft registry.

What we don't know is much more expensive.

As an initial matter, we don't know whether or to what extent actual losses have occurred or when they occurred given the uncertainty.

Surrounding the location and condition of aircraft and other equipment as well as the timing of their potential returned to lessors, nor do we know what efforts have been undertaken by lessors to mitigate any damages as to the question of losses caused by war apparel versus non war apparel. This is a critical question that will need to be answered as the outcome will determined.

<unk> policy might apply in the amount of coverage that may be available.

With respect to war perils, such as government confiscation. This type of loss would typically be included in our whole war policy, but it must be first be determined if there is an actual confiscation.

Even where it is determined that a government confiscation took place consideration will also have to be given to the timing of notices and the geographic scope of coverage.

The answers to these questions will impact whether there is a covered loss and if so whether a given whole war policy response.

With respect to reinsurance structures likely implicated in a war apparel scenario include war marine and energy and political violence, but it's also possible that other types of reinsurance contracts could be available for recoveries.

If a losses alleged to be due to a non war apparel it could be covered in an all risk policy as an initial matter. However, a determination would need to be made that a loss. In fact has occurred and then if it has that is due to a non more apparel.

Additionally, as with war parallels you would have to consider if reinsurance is available the reinsurance that would be typically available in all risk scenario may be in different structures than in government confiscation or other war apparel scenario.

As to all potentially covered perils there are many issues requiring analysis, including the potential applicability of any sanctions assuming claim payments are made insurers will also have to consider their recovery rights through salvage and subrogation and contribution from other available insurance.

This is just a high level summary of some of the issues the industry will grapple with but I thought they were important to highlight and you get the idea that it's a complex situation.

Now turning to the separation of life retirement, we made significant progress to prepare this business to be a standalone public company.

We continue to target an IPO in the second quarter subject to market conditions and required regulatory approvals.

We also continue to expect that we will retain a greater than 50% interest in this business post IPO.

As you can appreciate given where we are in the process. There are limitations on how much I can say about life and retirement, but let me give you some highlights of what we've accomplished since our last call in March we announced several important milestones the public filing of the S. One.

The new name for life retirement, which as I mentioned is corbridge financial.

And the independent directors, who currently serve on the Corbridge Board of directors and also will join and strengthen the board as of the IPO.

At the same time, we launched a $6 billion corporate senior notes offering which was upsized a $6 5 billion base.

Based on significant demand <unk>.

Shane will provide more detail on the maturities and coupons.

We also made substantial progress on the operational separation of our life retirement business from AIG, including identifying $200 million to $300 million of cost savings for this business inclusive of the $125 million in savings already in flight as part of our AIG 200 transformation program.

And we continue to execute on establishing a hybrid investment manager model that will allow corbridge to benefit from strategic partnerships with world class firms that offer excellent origination and investment capabilities and that complement our own capabilities in asset classes, such as commercial mortgage loans global real estate and private equity.

QWERTY.

The first step in moving to this hybrid model was our strategic partnership with Blackstone, which we announced in 2021.

In March of this year, we announced an arrangement with black rock, where by Blackrock will manage up to $90 billion of.

<unk> liquid assets.

In addition, we developed a plan to modernize the mid and back office functionalities of the business and the transition to Blackrock Aladdin technology platform with respect to life of retirements entire investment portfolio.

Aladdin enables us to replace aging and end of life technology infrastructure provides risk analytics establishes a single accounting book of record in a single investment book of record as well as reporting stress testing and other services currently performed across multiple systems at AIG.

We expect that the cost per corbridge to operate this hybrid model taking into account, both Blackstone and black rock will be approximately the same as the fully loaded cost of our private investment management operating model, where asset management was largely handled in house.

Shifting to our first quarter financial results as you saw in our press release adjusted after tax income was $1 30 per diluted share representing an increase of 24% year over year.

This result was driven by significant improvement in profitability in general insurance good results in life retirement, considering the current environment.

<unk> expense discipline savings from AIG, 200, and strong execution of our capital management strategy.

In General insurance, we reported an accident year combined ratio, excluding cat of 89, 5%, a 290 basis point improvement year over year, and the 15th consecutive quarter of improvement.

We were especially pleased with the accident year combined ratio, excluding cat and commercial which was 86% an improvement of 440 basis points year over year in.

In life retirement first quarter results benefited from product diversity, despite headwinds in the capital markets return on adjusted segment common equity was 10%.

AIG ended the first quarter with $9 1 billion and parent liquidity after returning $1 $7 billion to shareholders through $1 4 billion of common stock repurchases and $265 million of dividends.

Now, let me provide more detail on our first quarter results in general insurance, where we continue to drive improved financial performance with core fundamentals being key contributors gross premiums written increased 10% on an FX adjusted basis to $11 5 billion.

With commercial growing 11% and personal growing 8%.

Net premiums written increased 5% on an FX adjusted basis to $6 5 billion.

This growth was led by our commercial business, which grew 8% with personal contracting 1%.

Growth in North America commercial net premiums written was 6% and an international net premiums written growth was 10% both on an FX adjusted basis.

I'd like to unpack certain components of North America commercial net premiums written as we had a very strong growth in our core business that may not be immediately obvious.

While there are always movements each quarter in various aspects of our portfolio both positive and negative there were three items that impacted the first quarter that I'd like to provide more insight on that.

These items relate to assumed and ceded reinsurance and the timing of purchases, which is not something we have focused on previously.

But which I think is worth spending a few minutes on given the impact they had on North America commercial net premiums written.

The first item relates to AIG re our assumed reinsurance business.

Financial results for AIG re are included in the financial results for North America commercial and in the first quarter represented 40% of the segment's total net premiums written.

For AIG re the first quarter is the largest quarter of the year with over 50% of his annual business written at one one.

In the first quarter of 2020 to AIG <unk> net premiums written were flat year over year.

This result was deliberate as we apply a disciplined approach to underwriting and the market environment that persisted leading up to one one led us to conclude that AIG re could not achieve appropriate levels of risk adjusted returns in property cat in particular, even with a comprehensive retro sessional program in place as a result.

We reduced gross limits deployed in property cat, primarily in the U S by $500 million, which was the main reason for AIG Reis net premiums written being flat.

With respect to the second item you may recall that in 2021.

AIG re may discrete retro sessional purchases throughout the year to further reduce frequency and volatility, whereas this year retro sessional purchases were consolidated into the 112022 renewals as the retro market rebalanced.

As a result of this decision AIG re ceded premiums were higher in the first quarter of 2022, which also reduced North America Commercial's net premiums written when compared to the first quarter 2021.

Third a similar dynamic occurred with respect to our core property cat reinsurance program for AIG.

In 2021, we purchased reinsurance throughout the year to lower net retentions and reduce volatility, particularly with respect to North America property cat.

In 2022, however, those purchases were also consolidated into our core property cap placement at one one.

We were able to consolidate these reinsurance purchases because our portfolio is much improved from last year with significantly reduced exposures like the actions. We took in AIG re however, this reduced North America commercial net premiums written in the first quarter to summarize some of these headwinds in the first quarter of 2022.

<unk> will largely reverse in the second quarter.

Now turning back to growth in North America commercial we saw very strong growth in net premiums written particularly in retail property, which grew more than 20%.

Crop risk services, which also grew more than 20%.

Lexington, wholesale which grew more than 15% led by property, which grew more than 50% and our Canadian commercial business, which grew more than 15% and international commercial. We also saw very strong growth, including in property, which grew 50% specialty which grew 34% driven by energy and marine.

And financial lines, which grew 14%.

And global commercial we also had very strong renewal retention of 86% and our in force portfolio in both North America, and international with North America, improving retention by 300 basis points and international retention holding constant year over year, we calculate renewal retention prior to the impact of rate.

And exposure changes.

And across commercial on a global basis, our new business was very strong coming in north of a $1 billion for the fourth consecutive quarter, new business growth in North America and in international were both up 13%.

North America, New business growth was led by Lexington, and retail property International commercial new business growth was led by financial lines and global specialty.

Turning to rate strong momentum continued in global commercial with overall rate increases of 9% or 10%. If you exclude workers' compensation and in the aggregate rate continued to exceed loss cost trends.

This continues to be a market in which we are achieving rate on rate in many cases for the fourth consecutive year and wherever successfully driving margin expansion above loss cost trends.

North America commercial achieved 8% rate increases overall, 10%, excluding workers' compensation with some areas achieving double digit increases led by retail property, which increased 14%.

Lexington, which increased 13% financial lines, which increased 12%, including more than 85% rate increases in cyber and Canada, where rate increased 13%, representing the 11th consecutive quarter of double digit rate increases in this region.

International commercial rate increases were 10% overall, driven by financial lines, which increased 21%, including more than 60% rate increases in cyber <unk>.

Property, which increased 14% EMEA, which also increased 14% in Asia Pac which increased 10%.

Last quarter, we indicated that our severity trend view in the aggregate in North America commercial range from 4% to 5% and that we were migrating towards the upper end of that range. We now believe the upper end is moving towards five 5%, mostly driven by shorter tail lines.

Our property rate changes, where we continue to achieve.

Mid teen increases equal or exceed loss cost trends in our own data and in government published inflationary indices are liability trend assumptions continue to be in the 7% to 9% range with international indications continuing to be less than those in North America.

Turning to personal lines in North America personal net premiums written grew nearly 40%, albeit off a smaller base driven by a rebound in travel and A&H.

Which was offset by a reduction in warranty and increased reinsurance session supporting private client group.

International personal saw a 5% reduction in net premiums written on an FX adjusted basis due to a reduction in warranty and personal auto in Japan offset by a rebound in A&H and travel overall personal lines is an area, where we continue to invest where there are attractive opportunities for profitable growth.

Now let me review life retirement results. This business had a good quarter, considering the headwinds created by the capital markets.

These market dynamics were offset by continued strong alternative investment income and strong growth in premiums and deposits, which increased 13% year over year to $7 3 billion.

Adjusted pre tax income in the first quarter was $724 million with return on attributed segment equity of 10% adjusted pre tax income decreased in the period due to lower call and tender income and continued elevated COVID-19 mortality, which is still within our previously established guidance.

Blackstone's capabilities in the early days of our partnership resulted in life and retirement seeing one of its strongest fixed annuity sales quarters in over a decade with premiums and deposits up nearly a 150% year over year to $1 $6 billion, while surrenders in death benefits both improved slightly.

Post separation, we continue to expect that life retirement, meaning corbridge will achieve a return on equity of 12% to 14% and that it will pay an annual dividend of $600 million.

Overall, I'm pleased with the momentum in life and retirement and in particular, the early success of our partnership with Blackstone that was evident in the first quarter results with.

With respect to capital management, we had a very active first quarter, which ended with $9 1 billion and parent liquidity.

As a result of the actions I outlined earlier in my remarks, AIG received $6 5 billion.

Of the eight $3 billion promissory note issued to AIG from Corbridge and those funds were used to repay outstanding AIG debt, resulting in aig's interest expense being reduced by 23% year over year.

In addition, AIG will receive the remaining $1 9 billion under the Corbridge promissory note during the second quarter, our capital management strategy will continue to be both balance and discipline as we maintain appropriate levels of debt, while returning capital to shareholders through stock buybacks and dividends while also allow.

Owing for investment and growth opportunities across our global portfolio.

This will also be true over time, as we continue to sell down our stake in life retirement.

With respect to share buybacks as I mentioned earlier, we repurchased $1 4 billion of common stock in the first quarter and are on track to buy back at least $1 billion more than the second quarter.

This will leave us with approximately $1 5 billion remaining under our prior board authorization and as you saw in our press release, the AIG Board of directors recently authorized an additional $5 billion and share repurchases.

With respect to growth opportunities our priorities continue to be focused on allocating capital in general insurance, where we see opportunities for profitable organic growth and further improvement in our risk adjusted returns as.

As we move through 2022 and are further along with the separation of life retirement, we will provide updates regarding our capital management strategy.

Before I turn the call over to Shane I want to emphasize how pleased I am with how we started the year across AIG and how we are continuing to execute on multiple complex strategic priorities with high quality results that our positioning AIG as a top performing company. Our teams have over performed across the board and our deep bench continue.

To provide us with opportunities to leverage skill sets and further develop talent across the organization with that I'll turn the call over to Shane.

Thank you Peter and good morning to all I am very pleased to be <unk>, CFO and I look forward to working with everyone moving forward.

I will provide more detail on our first quarter financial results and unpack a number of our key performance metrics, specifically EPS liquidity leverage net investment income at <unk>.

I will begin by going through the financial results of the businesses in the quarter I will then touch upon the balance sheet leverage and liquidity, which benefited from excellent execution on a number of capital transactions.

We'll then supplement Peter's remarks on the separation of corbridge, including the arrangement, we announced with Blackrock and liability management actions, we recently completed.

I will then spend some time on investment income and we will provide insight on the impact of rising interest rates.

And finally, I will talk about the execution path towards our long term, 10%, our oce golfer AIG, including income drivers AIG 200, and other areas of corporate Joey reduction.

As Peter mentioned adjusted EPS attributable to AIG common shareholders grew 24% year over year to $1 30 per diluted common share compared to $1 five per diluted common share and one quarter 21 <unk>.

Compared to the first quarter 'twenty, one improvements in general insurance contributed 33 year over year reduction in share count contributed <unk> <unk>.

Lower interest expense contributed <unk> <unk>.

Offset by life and retirement being 19, some favorable primarily due to <unk> <unk> unfavorable due to lower net investment income.

General Insurance's adjusted pretax income contribution in the quarter was $1 2 billion, which reflect strong underwriting profit growth in global commercial and continued improvement in both the GAAP combined ratio.

590 basis points.

The Nike 92, 9% in the accident year combined ratio ex cat, improving 290 basis points to 89, 5%.

The combined ratio improvement was due to improved underwriting premium growth expense discipline, and lower cats, which all contributed to pretax underwriting income being six times higher than the first quarter of 2021, increasing to $446 million from 73 million.

With net investment income down $7 million year over year to $366 million improvement in adjusted pre tax income was driven by underwriting income of which 223 million was from improved accident year underwriting income of $146 million due to lower cat and four.

Million from improved net <unk>.

North America commercial has shown a 580 basis points improvement in the accident year combined ratio.

Ex cat over the prior year quarter.

Coming in at 88, 1%.

International commercial also continued to improve profitability with 330 basis points improvement in the accident year combined ratio ex cats this quarter coming in at 83, 5% for the first quarter.

Personal insurance GAAP combined ratio of 97, 2% improved by 160 basis points year over year.

In the first quarter cat losses were $274 million or four five loss ratio points compared to $422 million or seven three loss ratio points in the prior year quarter.

The most significant loss events in the quarter came from flooding in Australia, and a Japanese earthquake.

The ongoing events with Russia, and Ukraine, which Peter discussed contributed approximately $85 million of the estimated loss.

Prior year development, excluding related premium adjustments was $93 million favorable this quarter compared to favorable development of $56 million in the prior year quarter.

This quarter, the ADC amortization provided $42 million of favorable development in the balance of $51 million favorable arose from old accident years in U S Workers' compensation, along with short tail lines in North America and in Japan personal lines.

Life and retirement adjusted pre tax income of $724 million compared.

Compared to $941 million and <unk> 21, a reduction of $217 million, mostly attributable to lower net investment income, which was $2 1 billion in the quarter compared to $2 4 billion in the prior year quarter, a decrease of $224 million reflecting.

Lower call and tender activity from rising interest rates.

The absence of the affordable housing portfolio, which was sold in the fourth quarter 'twenty, one as well as reduced fee income and an increase in deferred acquisition costs and statement of position reserves due to lower separate account asset values.

Within individual retirement, excluding the retail mutual fund business, which was sold net flows were positive eight $874 million this quarter compared to positive net flows of $50 million in the prior year quarter benefiting from higher fixed annuity sales aided by origination activity through the Blackstone part.

Inertia.

Group retirement grew deposits by three 9% in the quarter driven by higher group acquisition and individual deposits driving a slight uptick in fee and advisory income due to higher assets under administration.

Life insurance adjusted pre tax income was a loss of $44 million due to continued elevated COVID-19 mortality, while premiums and deposits grew 334% to $1 2 billion benefiting from growth of international life sales.

Institutional markets grew premiums and deposits as well as reserves due to increased pension risk transfer activity in the period.

Turning to other operations, which includes interest expense corporate general operating expenses institutional asset management expense runoff portfolios and eliminations and was a positive contributor to adjusted pretax income year over year by $109 million.

These results benefited from lower interest expense of $51 million as we reduced our general borrowings through the course of 2021 by $4 billion.

And lower eliminations of $43 million.

Corporate general operating expenses, excluding increased functional cost to set up core bridge as a standalone public company of $6 million were largely flat year over year.

Moving on to the balance sheet leverage and liquidity, our financial flexibility remains strong we closed the quarter with $9 $1 billion of parent liquidity.

We saw a large ALC eye movement as a result of increase in interest rates.

Adjusted <unk>, which excludes the cumulative unrealized gains and losses related to fortitude moved from $3 9 billion positive to a $5 9 billion negative or a reduction of $9 8 billion.

Although this mark to market impact is a drag on capital as long as we hold the assets to maturity, we will not realize this unrealized loss.

Operating interest rate movements impact our metrics primarily in two places.

One we ended up with a gain on the fortitude re embedded derivative, which impacted GAAP EPS by $3 21 in the quarter and second it impacts our GAAP leverage by little over 300 basis points and with interest rates up another 55 basis points in April we expect to see further movement in Q2.

Yeah.

We exited the quarter at a GAAP leverage of 27, 8% up from 24, 6% the increase of which is attributable to the OCI movements.

The impact is larger than life and retirement and general insurance, given the duration of their respective asset portfolios.

Total adjusted return on common equity was seven 6% up from seven 4% in the first quarter 'twenty one.

Total company adjusted tangible return on common equity was eight 3%.

General Insurance's adjusted attributable return on common equity was 12, 3% in the first quarter, while life and retirement was 10%.

Adjusted book value per share of <unk>, $70, 72 sets increased two 7% sequentially and 25% year over year.

Adjusted tangible book value per share of $64 65.

Increased two 9% sequentially and 22, 3% year over year.

Our primary operating subsidiaries remain profitable well capitalized with general Insurance's U S pool fleet risk based capital ratio for the first quarter estimated to be between 470 and 480% in the life and retirement U S fleet is estimated to be between 434.

Third, 40%, both well above our target ranges.

Finally on EPS during the quarter, we repurchased 23 million shares at an average cost of $60 two for.

For one 4 billion.

Bringing our ending share count to $800 million with a quarterly average of $826 million compared to $876 million in the prior year quarter, representing a 6% reduction in average share count, which contributed seven of EPS growth in the quarter.

Turning to corporate since the start of the year, we continued to make progress on numerous fronts with respect to the separation.

As Peter mentioned at the end of the first quarter Corbridge entered into a strategic partnership with Blackrock to manage up to 90 billion of liquid assets at the same time AIG also entered into a separate arrangement with Blackrock, where by Blackrock will manage liquid assets for AIG, representing up to 60 billion.

Having now signed <unk>, we expect to begin transferring assets to Blackrock over the course of the second quarter.

In early April Corbridge successfully raised $6 5 billion of senior notes, which along with the remaining $2 $5 billion of delayed draw term loan facility and commitments for the $2 $5 billion of revolving credit facility. This establishes the capital structure for coverage financial.

AIG proactively hedged treasury rates earlier in the year.

Upon unwind in the hedge at quarter end, AIG realized a $223 million gain which equates to approximately 50 basis points and yields on the notes issued.

While the debt issuance closed early in Q2, the $223 million gain was realized as a gain in the first quarter.

The senior notes offering and excluding the hedge was well structured and ladders with a $3 nine 1% weighted average coupon rate Corbett to use the proceeds from that offering to repay six 4 billion of the eight 3 billion promissory note payable to AIG.

Following the success of core bridges senior notes issuance AIG initiated a debt tender offer taking advantage of strong demand. The tender offer was upsized and AIG parent that was ultimately reduced by $6 8 billion in.

An additional $750 million euro will be redeemed on may 10th, bringing the total expected AIG parent debt reduction to seven 6 billion.

The average coupon on the debt that we retired was 382% and the annualized interest expense savings is approximately $290 million.

We continue to target debt leverage in the high Twenty's, excluding OCI for coverage and then the low twenty's, including AA OCI for AIG going forward.

Given the significant progress we have made and with $1 nine of proceeds from the eight $3 billion know yet to be received we have the necessary cash to finalize our plant debt actions without utilizing any of the proceeds from the IPO.

With these actions completed we remain on track for an IPO in the second quarter subject to market conditions and regulatory approval.

Net investment income on an adjusted pretax income basis for the quarter was $3 billion total cash and investments were 305 billion excluding fortitude.

Net investment income in the first quarter decreased $193 million compared to prior year, primarily reflecting lower call and tender income.

The first quarter saw significant increases in benchmark treasury yields with an 80 basis point increase on the tenure.

With general insurance and life and retirement portfolio durations of four and $8 four years respectfully. The overall rising interest rate environment will provide a tailwind to our investment portfolio returns.

In April our portfolio across the equilibrium point, where new money yield is now 50 basis points higher on average than the yields on the assets rolling off the portfolio.

The new money yield is higher by 20 basis points in general insurance versus assets rolling off and 70 basis points in life and retirement versus the yield on sales and maturities currently.

Moving forward the new money yield is roughly 60 basis points higher than the current portfolio and general insurance and roughly 90 basis points higher and life and retirement.

To illustrate the points holding all other variables constant and assuming a 100 basis point parallel shift in the yield curve, we would anticipate approximately $500 million of benefit to adjusted net investment income over a one year period with nearly $200 million in general insurance and $300 million.

Life and retirement.

Within General insurance, we have $11 billion of floating rate securities, which will begin to see some benefits in the near term most of which are not tied to longer dated liabilities life and retirement is $25 billion of floating rate assets.

Most of this portfolio is tied to floating rate liabilities that will offset the benefits.

Turning to investments that have Russian exposure at December 31, AIG held $359 million of sovereign and other foreign debt of the Russian Federation of which $79 million were within fortitude through proactive sell downs of $129 million, which generated a loss of 41.

Million.

As well as the establishment of a credit allowance of $127 million the market value of these securities at the end of the first quarter was $86 million of which 80 $18 million was held by <unk>.

Looking ahead, we have three priorities beyond continued progress on underwriting optimization and completing the AIG 200. They are they are the successful separation of the life and retirement business continued execution on our capital management priorities at <unk> improvement towards 10%.

Post deconsolidation of core bridge, we expected AIG will earn a 10% <unk>. Although there are many moving pieces that will get to this result, including the size and timing of the corbridge IPO additional capital management actions and continued progress on reducing expenses.

As we've improved expense ratios in general insurance, one of the key drags on our oce is corporate expenses, which we have been reducing through AIG 200 and work on the separation, but there remains more work to be done.

As Peter noted with respect to AIG 200, we continued to achieve significant milestones and in the first quarter reached $890 million of exit run rate savings with $590 million of that realized to date. We currently expect our full line of sight into the $1 billion of exit run rate savings.

Either contracted or identified by the end of the second quarter six months earlier than originally planned.

Of the $1 billion of parent expenses, we expect that approximately $300 million will move to corbridge. Upon deconsolidation, we will continue to provide updates over time, but the components to get to a 10% ROE CE. Our continued growth in underwriting profit improved net investment income as we benefit from higher.

Interest rates continued execution on expense management, particularly apparent and optimizing capital allocation in terms of leverage and returns to shareholders in the form of stock buybacks and dividends, whilst making sure that we continue to grow the company.

Peter I will now hand, it back to you.

Thank you Shane operator, we're ready for questions.

Ladies and gentlemen, if you would like to ask any questions simply by pressing star one on your telephone keypad do keep in mind. If you are using a speakerphone make sure. Your mute function is released so that similar creature equipment. We do ask that you limit yourself to one question and one follow up question.

Once again star one if you would like to enter the queue.

We will begin with Elyse Greenspan with Wells Fargo.

Hi, Thanks. Good morning. My first question is on capital return that you guys laid out.

That ticked over $9 billion at the home.

Peter I think you said, a minimum buyback 1 billion for the second quarter.

Just given that you have above $9 billion at the Holdco with additional capital coming later this year and I think that.

There is some flexibility it perhaps the bulk of that billion. So can you just kind of walk us through a little bit more how you are thinking about.

Uses of capital for growth.

Relative to buyback.

Hi, Karen.

Yes, Thanks, Elyse for the question good morning.

Yes, we said, we would do a minimum of $1 billion of share repurchases in the second quarter, I think Shane and I tried to do as much details, we couldnt have prepared remarks, and aligning what our priorities are for capital management.

And certainly the board's authorization for an additional 5 billion says that we will continue to return.

Capital to shareholders in the form of share repurchases, we think.

Positioning of the business I mean, I think you see in the results.

We see great opportunities for top line growth, we see it across the world we see it in.

The commercial businesses, but also what you would have seen in some of the international Thats, probably masses that accident and health has started to rebound over the last three quarters and we're starting to see topline growth. There. So we want to make sure that we are allocating the appropriate capital for growth and driving.

Margin and making the company look at its opportunities on risk adjusted returns and make sure that we're capitalizing on the market and our discipline.

I think really when we get to the.

The actual IPO and core bridge as a public company, we'll be able to outline the capital management strategy in more detail, but we wanted to provide as much guidance as we could based on what we know today and we would expect to continue to make the progress that we've demonstrated.

In the earnings call today.

Okay. Thanks, and then my follow up.

<unk> pointed out that you raised some of your severity assumptions within general insurance on the short side.

When you guys set out that target for the accident year combined ratio of 93. This year was that contemplated.

And then.

How about the cadence can you give us a sense should we think about sequential improvement from the Q1 level as we move through the year or is there some seasonality that we should be considering within general insurance.

Yes.

Let me take the first part and then I'll ask Mark to comment on the loss cost observations.

We have seen.

When you think about the.

Quality in the results that we produced this quarter when we look at our business. When we look at it we look at client retention, which continues to improved we look at new business or acquiring a lot of new.

Clients across the world and so that continues to progress and think that there is a lot of momentum there we look at rate above.

Loss cost trends.

So that was favorable and we continue to get rate in areas where.

We believe it is required in terms of its risk adjusted returns and again with our leadership in terms of deploying capital.

Are all the inflation factors considered in.

The sub 90, well no. We obviously are adjusting them, but the outperformance that we have been driving wasn't contemplated either I mean, like we're making more progress on the business at a faster pace.

And think that we will continue to show that we can grow the business topline and generate the risk adjusted returns and improvement in combined ratios Mark do you want to comment on the loss cost.

Yes, Thank you Peter.

Lease so I think Peter answered it very well.

I'll do is just reemphasize that yeah I mean.

<unk>.

Context of your question, we gave that original guidance before there was any spike in inflation, but I think any good company you don't forecast just a point estimate you are forecasting a range and those ranges vary by line of business and they all melt together and even with the changing inflation assumptions at least there'll be <unk>.

Side of that range, so we're comfortable with that.

Thank you.

Sure.

Next question please.

We'll go to Meyer shields with <unk>.

Yes.

Thanks. Good morning, I think this might also be a question for Mark.

Thanks, Larry.

Clearly seeing.

A little bit less.

Core loss ratio improvement than the simple mathematical application of earned rate increases in loss trend and I was hoping you could talk about how that's manifesting itself in prior year reserve reviews.

Yes, Marc please take that I mean, I think it's also important to give some context of the portfolio shift as well Mark when we look at loss ratios.

Okay.

Yes happy to.

Meyer for the question so.

I think on that side first on on.

On the reserve side.

When you look at our view of inflation and severity trends and so forth you really got a separate.

Short tailed lines from longer tail lines like in.

In our view.

The evidence within our own information as well as looking at external indices, whether it's from the perspective of the purchaser of the seller.

It's clearer with property oriented lines.

<unk>.

Not really worth noting back to Peters comment on mix is that less than 10% of our.

Pre ADC reserves our property so.

Kevin.

They can't move the needle too much.

So I don't really view that as an issue in terms of nonprofit <unk>, we've gone through looking at various.

Basis points scenarios of Lyft and for various durations associated with it and we still feel.

All of that is pretty contained and don't forget.

Essentially our longer tail lines, there's still a high proportion of total reserves subject to the ADC recoverable.

As well so.

In terms of the your first part of your question with regard to the arithmetic.

Versus what's there I think we've addressed this before buyer about happy.

Give some comments again, which is the book has changed so dramatically.

Policy year, 18, 19, 2021, and it's accident year conversions.

That you need a <unk>.

Margin of safety associated with it because.

Nobody back.

On these things, but theres been a radical change in the quality of the risk distribution strategy that David Mcelroy.

And it seems to have instituted getting much better risk.

Portfolio.

<unk> purposely done to improve it to all the limit changes that Peter talked about overtime.

And as a result.

The arithmetic just doesn't pan out let alone the change in mix that has been purposeful let alone the change in net mix. So all of those changes simultaneously require in our view.

A reasonable range of margin of safety and Thats, what youre, saying.

Okay. Thanks, that's very helpful.

Quick follow up if I can I know there are a lot of moving parts, but is there any way of quantifying the impact of the reinsurance purchasing timing on the expense ratio in the quarter.

Thanks, Mark I'll take that.

As I said, it's going to be a headwind in the first quarter will be a tailwind in the second quarter.

Once we.

There's a couple of moving pieces, we can't really provide the exact numbers, but you can look at it like in the second quarter, where we purchased down on the North America commercial cat lower Retentions as.

As well as in AIG re where we reduced volatility by buying.

Single shot per occurrence retro sessional.

The second quarter and both recovered by the way last year, So we felt that reducing.

Net retention was appropriate and carrying that forward into <unk>.

We were going to structure. The one one treaty for AIG as well as the retro sessional covers four for AIG re so we have lower <unk> than we would have at this time last year.

It's not uncommon to.

Purchase some times midterm. It there is available capacity and you're still trying to evolve the program, but we felt very good about the consolidation of those programs at one one and really liked the reinsurance that we have in both instances.

Okay fantastic. Thank you very much.

Okay.

And now we'll hear from Ryan Tunis with autonomous research.

Hey, Thanks, Good morning couple of questions just following up from.

From the first two question Askers first one.

We saw about three five points of sequential loss ratio improvement this quarter in commercial lines in general.

I noticed that last year. We also saw like the biggest sequential move in the first quarter. So I'm curious if there's something about <unk>.

Setting a loss pick assumption or something like that.

Let's leave it at that level.

Sequential jump that's outsized.

Yes, let me start thanks very much for the question.

They're as mark touched on a little bit and I'll ask if he has any additional comments after I make a few observations on the mix of business, but what we had in the first quarter, obviously is a big.

AIG, which when you look at if youre changing the composition of the portfolio from reducing cat to doing more proportional.

Youre going to have lower loss ratios higher acquisition cost and so that will have a sometimes impact in terms of how it earns into into the first quarter. We also had in terms of the overall general insurance business.

The mix changes because on the one hand, we wanted to make sure that we were patient with A&H, which is a great business for us and travel in terms of its rebound after COVID-19, but not really reducing the overall overhead but it does have a impact in terms of the mix and acquisition expense.

And loss ratio. The other thing you have to consider where we started I mean the.

Incredible improvement that we've had in the portfolio has been.

Disciplined we've always talked about underwriting from a risk selection standpoint in terms and conditions attachment.

Reducing volatility with supplementing reinsurance and then of course price above loss cost and I think when you do that sequentially and maintain the same level of discipline, we start to see the outcome.

Produced like we had in the first quarter Mark anything you want to add to that.

Yes. Thank you Peter Yeah, I think your point about mix is right on point I remember theres two mixes.

You've got the mix on the front end and then you got the mix changes that manifest by the reinsurance purchases and how they earn in overtime.

Both of those factors I think.

Secondly, there is also the realization that over time the property at shorter tailed businesses.

Last couple of years are eight.

What's the mix of that overtime, and therefore with the mix of medium and longer term lines that have volatility associated with them that you bet.

<unk> got to watch hitting yourself that the quarter by quarter is super predictable, if you get the accident year right.

Happy.

The accident quarter by accident quarter is a little bit more of an academic exercise. So I think that maybe some of what youre seeing.

Got it.

Yes.

My follow up just on the acquisition cost ratio when you think about.

The reinsurance purchasing the ceding commissions to change in the mix can you guys make a directional assumption at this point about should the acquisition cost and general insurance should that ratio would be higher or lower in 2022 over 2021.

It's hard to predict I think your first part of the question is do ceding commissions as they start to it.

Earn in benefit.

The overall expense ratio the answer is yes.

It wasn't always the case when we were starting to turn.

Turnaround in but today, we have mark.

Market terms or better on ceding commissions.

And that starts to earn in but I hate to go back to travel and accident health I mean, those really dip during the pandemic in the U S rebounded versus international starting to rebound and those businesses just by its nature of how they're set up have lower loss ratios and higher acquisition expenses. So it's hard to predict I mean.

What's the recovery look like what's our growth look like whats the mix of business look like so it's really hard Ryan to give a forecast in terms of what the impact is what we will focus on all the time as improvement and accident combined ratio. So we're not going to be shifting from one category of loss ratio in DAC.

Or back I mean, we're going to make sure we're focused on the portfolio optimization and mix of business to improve the overall results.

Thank you.

And now we'll hear from Alex Scott with Goldman Sachs.

Hi, Good morning first question I had is just on the life and retirement side.

When.

When I look at the 10 Roe.

Well in a tough environment.

But that said.

Think the skeptic would kind of point to the alternative returns and how strong they were and whether that can continue.

But.

At the same time, there were probably some other things in there I think probably that true ups and things like that related to the markets would have hurt you without maybe the details it's a little hard from the outside to tell sort of what what the ROE.

It was running at on a run rate basis at the moment relative to that 12% to 14% that you. All have highlighted so could you talk about that a little bit and how we should think about sort of the deal.

The level of ROE you think you can earn right now.

Thanks, Alex I mean as you can appreciate preparing for the IPO of life retirement, we do have constraints in terms of how much detail. We can go into I think if you look at the S. One in terms of how we believe we can drive a 12% to 14% Roe.

Over the long term is something we're very confident about.

And if you look at the historical performance of life retirement in terms of its ROE and attributed.

Capital and they've done very well I mean, Kevin keeping in mind, we've got to be very careful do you want to provide maybe one or two items.

Your observations on the quarter.

Yes, Thank you Peter and thanks, Alex.

It really is about the combination of the lower equity markets, which do impact the back end side.

Due to the lower present value of the fee income that is kind of a one off item.

Im excited to be continuing and then of course.

We have the increased Sop reserves in.

And these are things that will be much less of an impact under <unk>.

Really the onetime impact of that and then in terms of interest rates rise, but the increased rates that does very much effect called tender income.

So basis CML prepays.

And what's the direction of the markets the fair value options and I think we've provided that detail both in the.

For today on page 11, and also in the Samsung.

Thanks, Kevin.

I'll answer another question.

Maybe as a follow up just going back to the.

ROE improvement overtime.

Some of those items certainly will take some time and I don't know if you want to put a specific timeframe around it but I guess the piece of it thats related to corporate cost reductions.

For that piece specifically.

For what time period, do you think you'd be able to sort of take out.

Call it stranded costs associated with the separation.

We provided a lot of detail in shape.

<unk> prepared remarks, and I don't think its really worth going back and going through point by point, but the most important thing for us at this stage is to sequence is really the strategic.

The initiatives, we have in front of us the most important being right now the corbridge IPO, So thats a big.

Project in itself and making sure that core bridge is set up to be a separate stand alone public company and given the IPO away.

Also making sure that all of the.

Things that are done at AIG today that need to be transferred over or worked with corbridge is the next highest priority and we have a.

Our parent expenses you have to think of it as parent and what is general insurance today coming together as one company.

And coming together as one company, we want to be very thoughtful about the business. We're in in the future what is a target operating model and how do we sequence that.

In a manner that we are not creating any risk with all the things that we have going on strategically and that we get to the right outcome.

And I think our track record has demonstrated whether its the underwriting turnaround AIG 200, what we're doing in terms of core bridge you should be highly confident we'll do it at a pace that.

<unk> is certainly.

Front of mind, but at the same time, making sure that we have all the very important pieces of what we're doing in the separation done.

Very well and so like that's kind of a timeframe.

But it's really not going to be what month, what quarter its going to be how do we execute things and then sequence. The next priority, which will be how we bring parent and general insurance together.

Okay. Thank you gentlemen.

Yes.

Youre welcome.

If I may let me just just want to thank everybody for.

Our clients.

Our distribution partners and our colleagues have been tremendous in terms of the work that they've done and the contribution that they've driven to to get to these results. So everybody have a great day. Thank you for your time.

And once again, ladies and gentlemen, this does conclude your conference for today, we do thank you for your participation and you may now disconnect.

[music].

Yes.

[music].

Good day and welcome to Aig's first quarter 2022 financial results Conference call. Today's conference is being recorded and now at this time I would like to turn the conference over to Quentin Mcmillan. Please go ahead.

Thanks, very much Jake.

Today's remarks May include forward looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based on management's current expectations Afg's filings with the SEC, including our annual report on Form 10-K, and quarterly reports on Form 10-Q provide details on important factors that could cause actual results or events to <unk>.

Materially.

Except as required by the apical applicable securities laws AIG is under no obligation to update any forward looking statements if circumstances or management estimates or opinions contained additionally, todays 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 presence.

Patients all of which are available on our website at www Dot AIG dot com with that I'd now like to turn the call over to our chairman and CEO Peter Zaffino.

Good morning, and thank you for joining us to review our first quarter financial results I am very pleased to report that AIG had an excellent start to 2022.

We are successfully executing on several strategic operational and financial priorities and our team has significant momentum on many fronts, which we believe will continue throughout the year.

Today I will cover four topics first I.

I will outline the tremendous progress we've made towards the separation of our life and retirement business, which will be renamed Corbridge financial.

<unk>.

I will review the excellent first quarter performance of General insurance, where we continue to drive top line growth, particularly in global commercial and saw a meaningful improvement in underwriting profitability.

Third I will cover life retirement financial performance. This business remains a meaningful contributor to our overall results and fourth.

Before I turn to these topics I'd like to discuss the situation in Russia and Ukraine.

It goes without saying that what is happening is heartbreaking.

Ukrainian people are experiencing unimaginable pain, and suffering and it's our hope that a peaceful resolution will be achieved.

With respect to the insurance industry, we've not seen a situation like this in modern times. It presents a unique set of circumstances that make any exposure or coverage analysis complex.

Let me start by commenting on what we saw at AIG in the first quarter and what we did with a few claims that were submitted.

The claims we received were largely reported under political violence or political risk policies.

While the amount of information included in the claims was limited.

We did reserve, our best estimate of ultimate losses, including IBM.

While we know it will take time for the full impact of the Russia, Ukraine situation to emerge based on the work we did in the first quarter to analyze our exposures and reviewed known claims we do not believe the impact will be material to AIG and in the event of losses, we have multiple reinsurance programs available.

As a starting point, it's important to bear in mind that standard property and energy policies issued to the types of insurance most likely to have suffered losses due to the conflict typically contained broad exclusions for losses arising out of war and other hostile acts.

Now I'd like to spend a few minutes on aviation because it's the topic that has received the most attention over the last 30 to 45 days.

Aviation is similarly complex and it will take time before all the relevant facts and resulting coverage implications fully emerge.

We also know that the invasion of Ukraine first occurred on February 24th and there were sanctions issued by the U K and the EU on February 26th which have since been updated.

These sanctions generally required airline lessors to cancel leases with Russian airline operators and gave them a brief period in which to do so.

What we don't know is much more expensive.

As an initial matter, we don't know whether or to what extent actual losses have occurred or when they occurred given the.

Uncertainties surrounding the location and condition of aircraft and other equipment as well as the timing of their potential returned to lessors, nor do we know if efforts have been undertaken by lessors to mitigate any damages.

So the question of losses caused by war apparel versus non war apparel. This is a critical question that will need to be answered as the outcome will determine which policy might apply in the amount of coverage that may be available.

Even where it is determined that a government confiscation took place consideration will also have to be given to the timing of notices and the geographic scope of coverage the.

The answers to these questions will impact whether there is a covered loss and if so whether a given whole war policy response.

Additionally, as with war Perils, you would have to consider if reinsurance is available the reinsurance that would be typically available in all risk scenario may be in different structure than in government confiscation or other war apparel scenario.

This is just a high level summary of some of the issues the industry will grapple with but I thought they were important to highlight and you get the idea that it's a complex situation.

Now turning to the separation of life retirement.

We made significant progress to prepare this business to be a standalone public company, we continue to target an IPO in the second quarter subject to market conditions and required regulatory approvals. We also continue to expect that we will retain a greater than 50% interest in this business post IPO.

The new name for life retirement, which as I mentioned is corbridge financial.

And the independent directors, who currently serve on the Corbridge Board of directors and also will join and strengthen the board as of the IPO.

At the same time, we launched a $6 billion corporate senior notes offering which was upsized to $6 $5 billion base.

Based on significant demand <unk>.

Shane will provide more detail on the maturities and coupons.

QWERTY.

The first step in moving to this hybrid model was our strategic partnership with Blackstone, which we announced in 2021 and.

In March of this year, we announced an arrangement with black rock, where by Blackrock will manage up to $90 billion of.

Corbridge liquid assets.

Aladdin enables us to replace aging and end of life technology infrastructure provides risk analytics establishes a single accounting book of record in a single an investment book of record as well as reporting stress testing and other services currently performed across multiple systems at AIG.

We expect that the cost for corbridge to operate this hybrid model taking into account, both Blackstone and Blackrock will be approximately the same as the fully loaded costs of our prior investment management operating model, where asset management was largely handled in house.

Shifting to our first quarter financial results as you saw in our press release adjusted after tax income was $1 30 per diluted share representing an increase of 24% year over year.

This result was driven by significant improvement in profitability in general insurance good results in life retirement, considering the current environment.

<unk> expense discipline savings from AIG, 200, and strong execution of our capital management strategy.

In General insurance, we reported an accident year combined ratio, excluding cat of 89, 5%, a 290 basis point improvement year over year, and the 15th consecutive quarter of improvement.

We were especially pleased with the accident year combined ratio, excluding cat and commercial which was 86% an improvement of 440 basis points year over year in.

In life retirement first quarter results benefited from product diversity, despite headwinds in the capital markets return on adjusted segment common equity was 10%.

AIG ended the first quarter with $9 1 billion and parent liquidity after returning $1 $7 billion.

To shareholders through $1 4 billion of common stock repurchases and $265 million of dividends.

With commercial growing 11% and personal growing 8%.

Net premiums written increased 5% on an FX adjusted basis to $6 5 billion.

This growth was led by our commercial business, which grew 8% with personal contracting 1%.

Growth in North America commercial net premiums written was 6% and an international net premiums written growth was 10% both on an FX adjusted basis.

Like to unpack certain components of North America commercial net premiums written as we had a very strong growth in our core business that may not be immediately obvious.

These items relate to assumed and ceded reinsurance and the timing of purchases, which is not something we have focused on previously.

But which I think is worth spending a few minutes on given the impact they had on North America commercial net premiums written.

The first item relates to AIG re our assumed reinsurance business.

Actual results for AIG re are included in the financial results for North America commercial and in the first quarter represented 40% of the segment's total net premiums written.

For AIG re the first quarter is the largest quarter of the year with over 50% of his annual business written at one one.

In the first quarter of 2020 to AIG <unk> net premiums written were flat year over year.

We reduced gross limits deployed in property cat, primarily in the U S by $500 million.

Which was the main reason for AIG Reis net premiums written being flat.

With respect to the second item you may recall that in 2021, AIG re may discrete retro sessional purchases throughout the year to further reduce frequency and volatility, whereas this year retro sessional purchases were consolidated into the 112022 renewals as the retro market rebalanced.

Third a similar dynamic occurred with respect to our core property cat reinsurance program for AIG.

In 2021, we purchased reinsurance throughout the year to lower net retentions and reduce volatility, particularly with respect to North America property cat.

In 2022, however, those purchases were also consolidated into our core property cap placement at one one.

<unk> will largely reverse in the second quarter.

Now turning back to growth in North America commercial we saw very strong growth in net premiums written particularly in retail property, which grew more than 20%.

Crop risk services, which also grew more than 20%.

Lexington, wholesale which grew more than 15% led by property, which grew more than 50% and our Canadian commercial business, which grew more than 15%.

In International commercial we also saw very strong growth, including in property, which grew 50% specialty which grew 34% driven by energy and marine and financial lines, which grew 14%.

And exposure changes.

And across commercial on a global basis, our new business was very strong coming in north of $1 billion for the fourth consecutive quarter, New business growth in North America and in international were both up 13%.

North America, New business growth was led by Lexington, and retail property International commercial new business growth was led by financial lines and global specialty.

This continues to be a market in which we are achieving rate on rate in many cases for the fourth consecutive year and where we are successfully driving margin expansion above loss cost trends.

North America commercial achieved 8% rate increases overall, 10%, excluding workers' compensation with some areas achieving double digit increases led by retail property, which increased 14%.

International commercial rate increases were 10% overall, driven by financial lines, which increased 21%, including more than 60% rate increases and cyber property, which increased 14% EMEA, which also increased 14% in Asia Pac which increased 10%.

Our property rate changes, where we continue to achieve.

Turning to personal lines in North America personal net premiums written grew nearly 40%, albeit off a smaller base driven by a rebound in travel and A&H.

Which was offset by a reduction in warranty and increased reinsurance session supporting private client group.

Now, let me review life retirements results. This business had a good quarter, considering the headwinds created by the capital markets.

These market dynamics were offset by continued strong alternative investment income and strong growth in premiums and deposits, which increased 13% year over year to $7 3 billion.

Adjusted pre tax income in the first quarter with $724 million with return on attributed segment equity of 10% adjusted pre tax income decreased in the period due to lower call and tender income and continued elevated COVID-19 mortality, which is still within our previously established guidance.

Blackstone's capabilities in the early days of our partnership resulted in life and retirement seeing one of its strongest fixed annuity sales quarters in over a decade with premiums and deposits up nearly 150% year over year to $1 $6 billion, while surrenders and that benefits both improved slightly.

Post separation, we continue to expect that life retirement, meaning corbridge will achieve a return on equity of 12% to 14% and that it will pay an annual dividend of $600 million.

Overall, I'm pleased with the momentum in life and retirement and in particular, the early success of our partnership with Blackstone that was evident in the first quarter results with.

With respect to capital management, we had a very active first quarter, which ended with $9 1 billion and parent liquidity as a result of the actions I outlined earlier in my remarks, AIG received $6 5 billion.

Of the $8 $3 billion promissory note issued to AIG from Corbridge and those funds were used to repay outstanding AIG debt, resulting in aig's interest expense being reduced by 23% year over year.

For investment and growth opportunities across our global portfolio.

This will also be true over time, as we continue to sell down our stake in life retirement.

With respect to share buybacks as I mentioned earlier, we repurchased $1 4 billion of common stock in the first quarter and are on track to buy back at least $1 billion more than the second quarter.

As we move through 2022 and are further along with the separation of life retirement, we will provide updates regarding our capital management strategy.

To provide us with opportunities to leverage skill sets and further develop talent across the organization with that I'll turn the call over to Shane.

Thank you Peter and good morning to all I am very pleased to be <unk>, CFO and I look forward to working with everyone moving forward.

I will provide more detail on our first quarter financial results and unpack a number of our key performance metrics, specifically EPS liquidity leverage net investment income at <unk>.

We'll then supplement Peter's remarks on the separation of corbridge, including the arrangement, we announced with Blackrock and liability management actions, we recently completed.

I will then spend some time on investment income and will provide insight on the impact of rising interest rates.

And finally, I will talk about the execution path towards our long term, 10%, our oce goal for AIG, including income drivers AIG 200, and other areas of corporate G&A reduction.

As Peter mentioned adjusted EPS attributable to AIG common shareholders grew 24% year over year to $1 30 per diluted common share compared to a $1 five per diluted common share and one quarter 21 <unk>.

Compared to the first quarter 'twenty, one improvements in general insurance contributed 33 year over year reduction in share count contributed <unk> <unk>.

And lower interest expense contributed <unk> <unk>.

Offset by life and retirement being 19, some favorable primarily due to <unk> 20 unfavorable due to lower net investment income.

General Insurance's adjusted pre tax income contribution in the quarter was $1 2 billion.

Which reflect strong underwriting profit growth in global commercial and continued improvement in both the GAAP combined ratio.

590 basis points.

To 90 92, 9% in the accident year combined ratio ex cat, improving 290 basis points to 89, 5%.

<unk>.

<unk> net <unk>.

North America commercial has shown a 580 basis points improvement in the accident year combined ratio.

Ex cat over the prior year quarter.

Coming in at 88, 1%.

International commercial also continued to improve profitability with 330 basis points improvement in the accident year combined ratio ex cats this quarter coming in at 83, 5% for the first quarter.

Personal insurance GAAP combined ratio of 97, 2% improved by 160 basis points year over year.

In the first quarter cat losses were $274 million or four five loss ratio points compared to $422 million or seven three loss ratio points in the prior year quarter.

The most significant loss events in the quarter came from flooding in Australia, and a Japanese earthquake.

The ongoing events with Russia, and Ukraine, which Peter discussed contributed approximately $85 million of the estimated loss.

Prior year development, excluding related premium adjustments was $93 million favorable this quarter compared to favorable development of $56 million in the prior year quarter.

Life and retirement adjusted pre tax income of $724 million compared.

Lower call and tender activity from rising interest rates.

Within individual retirement, excluding the retail mutual fund business, which was sold net flows were positive 80 $874 million this quarter compared to positive net flows of $50 million in the prior year quarter benefiting from higher fixed annuity sales aided by origination activity through the Blackstone.

<unk>.

Institutional markets group premiums and deposits as well as reserves due to increased pension risk transfer activity in the period.

Turning to other operations, which includes interest expense corporate general operating expenses institutional asset management expense runoff portfolios in eliminations and was a positive contributor to adjusted pretax income year over year by $109 million.

These results benefited from lower interest expense of $51 million as we reduced our general borrowings through the course of 2021 by $4 billion and lower eliminations of $43 million.

Corporate general operating expenses, excluding increased functional cost to set up core bridge as a standalone public company of $6 million were largely flat year over year.

Moving on to the balance sheet leverage and liquidity, our financial flexibility remains strong we closed the quarter with $9 $1 billion of parent liquidity.

We saw a large ALC eye movement as a result of increase in interest rates.

Adjusted <unk>, which excludes the cumulative unrealized gains and losses related to fortitude moved from $3 9 billion positive to a $5 $9 billion negative or a reduction of $9 8 billion.

This mark to market impact is a drag on capital as long as we hold the assets to maturity, we will not realize this unrealized loss.

Operating interest rate movements impact our metrics primarily in two places.

One we ended up with a gain on the fortitude re embedded derivative, which impacted GAAP EPS by $3 21 in the quarter and second it impacts our GAAP leverage by a little over 300 basis points and with interest rates up another 55 basis points in April we expect to see further movement in Q2.

Yeah.

We exited the quarter at a GAAP leverage of 27, 8% up from 24, 6% the increase of which is attributable to the OCI movements.

The impact is larger than life and retirement and general insurance, given the duration of their respective asset portfolios.

Total adjusted return on common equity was seven 6% up from seven 4% in the first quarter 'twenty one.

Total company adjusted tangible return on common equity was eight 3%.

General Insurance's adjusted attributable return on common equity was 12, 3% in the first quarter, while life and retirement was 10%.

Adjusted book value per share of <unk>, $70, 72 sets increased two 7% sequentially and 25% year over year.

Adjusted tangible book value per share of $64 65.

Increased two 9% sequentially and 22, 3% year over year.

Third, 40%, both well above our target ranges.

Finally on EPS during the quarter, we repurchased 23 million shares at an average cost of $60 two for.

For one 4 billion.

Bringing our ending share count to $800 million with a quarterly average of 826 million compared to $876 million in the prior year quarter, representing a 6% reduction in average share count, which contributed seven of EPS growth in the quarter.

Turning to core bridge since the start of the year, we continued to make progress on numerous fronts with respect to the separation.

Having now signed <unk>, we expect to begin transferring assets to Blackrock over the course of the second quarter.

In early April Corbridge successfully raised $6 5 billion of senior notes, which along with the remaining $2 $5 billion of delayed draw term loan facility and commitments for the $2 5 billion of revolving credit facility. This establishes the capital structure for coverage financial.

AIG proactively hedged treasury rates earlier in the year.

Upon unwinding the hedge at quarter end, AIG realized a $223 million gain which equates to approximately 50 basis points and yields on the notes issued.

While the debt issuance closed early in Q2, the $223 million gain was realized as a gain in the first quarter.

An additional 750 million euro will be redeemed on may 10th, bringing the total expected AIG parent debt reduction to seven 6 billion.

The average coupon on the debt that we retired was 382% and the annualized interest expense savings is approximately $290 million.

We continue to target debt leverage in the high Twenty's, excluding OCI for coverage and then the low twenty's, including AA OCI for AIG going forward.

Given the significant progress we have made.

With one nine of proceeds from the $8 $3 billion know yet to be received we have the necessary cash to finalize our planned debt actions without utilizing any of the proceeds from the IPO with.

With these actions completed we remain on track for an IPO in the second quarter subject to market conditions and regulatory approval.

Net investment income on an adjusted pretax income basis for the quarter was $3 billion total cash and investments were 305 billion excluding fortitude.

Net investment income in the first quarter decreased $193 million compared to prior year, primarily reflecting lower call and tender income.

The first quarter saw significant increases in benchmark treasury yields with an 80 basis point increase on the tenure.

In April our portfolio across the equilibrium point, where new money yield is now 50 basis points higher on average than the yields on the assets rolling off the portfolio.

The new money yield is higher by 20 basis points in general insurance versus assets rolling off and 70 basis points in life and retirement versus the yield on sales and maturities currently.

Moving forward the new money yield is roughly 60 basis points higher than the current portfolio and general insurance and roughly 90 basis points higher and life and retirement.

Life and retirement.

Most of this portfolio is tied to floating rate liabilities that will offset the benefits.

$1 million as well as the establishment of a credit allowance of $127 million the market value of these securities at the end of the first quarter was $86 million of which 80 $18 million was held by <unk>.

Looking ahead, we have three priorities beyond continued progress on underwriting optimization and completing AIG 200.

They are the successful separation of the life and retirement business continued execution on our capital management priorities at <unk> improvement towards 10%.

Post deconsolidation of core bridge, we expect that AIG will earn a 10% <unk>. Although there are many moving pieces that will get to this result, including the size and timing of the corbridge IPO additional capital management actions and continued progress on reducing expenses.

Either contracted or identified by the end of the second quarter six months earlier than originally planned.

Interest rates continued execution on expense management, particularly apparent and optimizing capital allocation in terms of leverage and returns to shareholders in the form of stock buybacks and dividends, while it's making sure that we continue to grow the company.

Peter I will now hand, it back to you.

Thank you Shane operator, we're ready for questions.

Ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad to keep in mind, if youre using a speakerphone make sure. Your mute function is released so that similar creature equipment. We do ask that you limit yourself to one question and one follow up question.

Once again star one if you'd like to enter the queue.

We will begin with Elyse Greenspan with Wells Fargo.

Hi, Thanks. Good morning. My first question is on capital return that you guys laid out. So you guys had kicked over $9 billion at the home.

Peter I think you said a minimum buyback 1 billion for the second quarter, but just given that you have above $9 billion at the Holdco with.

No capital coming later this year and I think that there is some flexibility to perhaps go above that 1 billion. So can you just kind of walk us through a little bit more how youre thinking about.

Uses of capital for growth.

Relative to buyback at least in the short term.

Yes, Thanks, Elyse for the question good morning.

Yes, we said, we would do a minimum of $1 billion of share repurchases in the second quarter, I think Shane and I tried to do as much details, we couldnt I prepared remarks, and aligning what our priorities are for capital management.

And certainly the board's authorization for an additional 5 billion says that we will continue to return.

Capital to shareholders in the form of share repurchases, we think the.

<unk> on the business I mean, I think you see in the results.

We see great opportunities for top line growth, we see it across the world we see it in.

The commercial businesses, but also what you would've seen in some of the international Thats, probably masses that accident health has started to rebound over the last three quarters and we're starting to see topline growth. There. So we want to make sure that we are allocating the appropriate capital for growth and driving.

Margin and making the company look at its opportunities on risk adjusted returns and make sure that we're capitalizing on the market and our discipline.

I think really when we get to.

In the earnings call today.

Okay. Thanks, and then my follow up.

<unk> pointed out that you raised some of your severity assumptions within general insurance on the store side.

When you guys set out that target for the accident year combined ratio of 90 for this year was that contemplated.

And then.

Yes.

Let me take the first part and then I'll ask Mark to comment on the loss cost observations.

We've seen.

When you think about the.

Quality in the results that we produced this quarter when we look at our business. When we look at we look at client retention, which continues to improved we look at new business. We are acquiring a lot of new.

Clients across the world and so that continues to progress and think that there is a lot of momentum there we look at rate above loss cost trends.

So that was favorable and we continue to get rate in areas where.

We believe it is required in terms of its risk adjusted returns and again with our leadership in terms of deploying capital.

Are all the inflation factors considered in.

And think that we will continue to show that we can grow the business topline and generate the risk adjusted returns and improvement in combined ratios Mark do you want to comment on the loss cost.

Yes, Thank you Peter.

Lease so I think Peter answered it very well.

I'll do is just reemphasize that yeah I mean.

<unk>.

And even with the changing inflation assumptions, we still be inside that range. So we're comfortable with that.

Thank you.

Sure.

Next question please.

We'll go to Meyer shields of <unk>.

Thanks. Good morning, I think this might also be a question for Mark.

<unk>.

Clearly seeing.

A little bit less.

Yes, Mark please take that I mean, I think it's also important to give some context of the portfolio shift as well Mark when we look at loss ratios.

Okay.

Yes happy to.

Meyer for the question so.

I think on that side first on on.

On the reserve side.

When you look at our view of inflation and severity trends and so forth you really got a separate.

Short tailed lines from longer tail lines.

In our view.

The evidence within our own information as well as looking at external indices, whether it's from the perspective of the purchaser of the seller.

It is clearer in.

In property oriented lines.

It's probably worth noting back to Peters comment on mix is that less than 10% of our.

Pre ADC reserves our property so.

Okay.

It can't move the needle too much.

So I don't really view that as an issue and in terms of nonprofit <unk>, we've gone through looking at various.

Basis points scenarios of Lyft and for various durations associated with it and we still feel.

All of that is pretty contained and don't forget.

Especially on the longer tail lines, there's still a high proportion of total reserves subject to the ADC unrecoverable.

As well so.

In terms of the your first part of your question with regard to the arithmetic.

Versus what's there I think we've addressed this before Meyer about happy.

Give some comments again, which is the book has changed so dramatically.

Policy year, 18, 19, 2021, and it's accident year conversions.

That you need a <unk>.

Margin of safety associated with it because.

Nobody bats 1000.

These things, but theres been a radical change in the quality of the risk distribution strategy that David Mcelroy.

This team has instituted getting much better risk.

Portfolio.

<unk> purposely done to improve it to all the limit changes that Peter talked about overtime.

And as a result.

The arithmetic just doesn't pan out let alone the change in mix that has been purposeful let alone the change in net mix. So all of those changes simultaneously require in our view.

A reasonable range of margin of safety and Thats, what you are seeing.

Okay. Thanks, that's very helpful.

A quick follow up if I can I know there were a lot of moving parts, but is there any way of quantifying the impact of the reinsurance purchasing timing on the expense ratio in the quarter.

Thanks, Mark I'll take that.

As I said, it's going to be a headwind in the first quarter will be a tailwind in the second quarter.

Once we.

There's a couple of moving pieces.

We can't really provide the exact numbers, but you can look at it like in second quarter, where we purchase down on the North America commercial cat lower Retentions as.

As well as in AIG re where we reduced volatility by buying.

Single shot per occurrence retro sessional.

The second quarter and both recovered by the way last year, So we felt that reducing.

Net retention was appropriate and carrying that forward into <unk>.

We were going to structure. The one one treaty for AIG as well as the retro sessional covers four for AIG re so we have lower <unk> than we would have at this time last year.

It's not uncommon to.

Purchased sometimes midterm, if there is available capacity and you're still trying to evolve the program, but we felt very good about the consolidation of those programs at one one and really liked the reinsurance that we have in both instances.

Okay fantastic. Thank you very much thanks.

Yes.

And now we'll hear from Ryan Tunis with autonomous research.

Hey, Thanks, Good morning, a couple questions just following up from.

From the first two question Askers first one.

We saw about three five points in sequential loss ratio improvement this quarter in commercial lines in general.

I noticed that last year. We also saw like the biggest sequential move in the first quarter. So I'm curious if there's something about <unk>.

Setting a loss pick assumption or something like that.

Let's leave it at that level.

Sequential jump that's outsized.

Yes, let me start thanks very much for the question we have there.

As mark touched on a little bit and I'll ask if he has any additional comments after I make a few observations on the mix of business, but what we had in the first quarter, obviously is a big.

AIG re which when you look at if youre changing the composition of the portfolio from reducing cat to doing more proportional.

And loss ratio. The other thing you have to consider where we started I mean the.

Incredible improvement that we've had in the portfolio has been.

Disciplined we've always talked about underwriting from a risk selection standpoint in terms and conditions attachment.

Produced like we had in the first quarter Mark anything you want to add to that.

Yes. Thank you Peter Yeah, I think your point about mix is right on point I remember theres two mixes.

You've got the mix on the front end and then you've got the mix changes that manifest by the reinsurance purchases and how they earn in over time. So you got both of those factors.

Secondly, there is also the realization that over time, the property and shorter tailed businesses.

Last couple of years or a <unk>.

What's the mix of that overtime.

And therefore with the mix of medium and longer term lines that have volatility associated with them that you, but you've got to watch kidding yourself that quarter by quarter is super predictable. If you get the accident year, right I'm happy accident quarter by accident quarter.

Is it a little bit more of an academic exercise. So I think that maybe some of what youre seeing.

Got it.

Hey, Mike.

A follow up just on the acquisition cost ratio when we think about.

The reinsurance purchasing the ceding commissions that change in the mix can you guys make a directional assessment at this point about should the.

Constant general insurance, so that ratio would be higher or lower in 2022 over 2020 one.

It's hard to predict I think.

Your first part of the question is do ceding commissions as they start to earn in benefit.

The overall expense ratio the answer is yes.

It wasn't always the case, when we were starting the turnaround and but but today we have mark.

Market terms or better on ceding commissions.

And that starts to earn in but I hate to go back to the travel and accident health I mean, those really dip during the pandemic in the U S rebounded first international starting to rebound and those businesses just by its nature of how their setup have lower loss ratios and higher acquisition expenses. So it's hard to predict I mean.

What's the recovery look like what's our growth look like whats the mix of business look like.

So it's really hard Ryan to give a forecast in terms of what the impact is what we will focus on all the time as improvement and accident combined ratio. So we're not going to be shifting from one category of loss ratio into act.

Or back I mean, we're going to make sure we're focused on the portfolio optimization and mix of business to improve the overall results.

Thank you.

And now we'll hear from Alex Scott with Goldman Sachs.

Hi, Good morning first question I had is just on the life and retirement side.

Yes.

When I look at the 10 ROE did hold up well in a tough environment.

But that said.

Thank the skeptic would kind of point to the alternative returns and how strong they were and whether that can continue.

But.

It was running at on a run rate basis at the moment relative to that 12% to 14% that you. All have highlighted so could you talk about that a little bit and how we should think about sort of the.

The level of ROE that you think you can earn right now.

Over the long term is something we're very confident about and.

And if you look at the historical performance of life retirement in terms of its ROE and attributed.

Capital they've done very well I mean, Kevin keeping in mind, we've got to be very careful do you want to provide maybe one or two items.

Your observations on the quarter.

Yes, Thank you Peter and thanks, Alex.

It really is about the combination of the lower equity markets, which do impact the back end side.

Due to the lower present value of the fee income that is kind of a one off item is not expected to be continuing and then of course.

We have the increased Sop reserves in.

And these are things that will be much less of an impact under <unk>.

Really the onetime impact of that and then in terms of interest rates rise, but the increased rates that does very much effect called tender income.

Real basis CML Prepays.

And with the direction of the markets the fair value options and I think we've provided that detail in both in the.

The deck for today on page 11, and also in these things up.

Thanks, Kevin.

So another question.

Yes, maybe just a follow up just going back to the.

ROE improvement overtime.

Some of those items certainly will take some time and I don't know if you want to put a specific timeframe around it but I guess the piece of it thats related to corporate cost reductions.

For that piece specifically.

For what time period, do you think you'd be able to sort of take out.

Call it stranded costs associated with the separation.

We provided a lot of detail in shape.

<unk> prepared remarks, and I don't think its really worth going back and going through point by point, but the most important thing for us at this stage is to sequence is really the strategic.

The initiatives, we have in front of us the most important being right now the corbridge IPO. So that's a big.

Project in itself and making sure that corbridge is set up to be a separate stand alone public company and given the IPO away.

Also making sure that all of the things that are done at AIG today that need to be transferred over or worked with corbridge is the next highest priority and we have a.

Our parent expenses you have to think of it as parent and what is general insurance today coming together as one company.

And coming together as one company, we want to be very thoughtful about the business. We're in in the future what is a target operating model and how do we sequence that.

In a manner that we are not creating any risk with all the things that we have going on strategically and that we get to the right outcome.

And I think our track record has demonstrated whether its the underwriting turnaround AIG 200, what we're doing in terms of core bridge you should be highly confident we will do it at a pace that.

<unk> is certainly.

Front of mind, but at the same time, making sure that we have all the very important pieces of what we're doing and the separation done.

Very well and select Thats kind of the timeframe.

Okay. Thank you gentlemen.

Yes.

Your conference.

If I may let me just just want to thank everybody for.

Our clients.

Our distribution partners and our colleagues have been tremendous in terms of the work that they've done and the contribution that they are driven to to get to these results. So everybody have a great day. Thank you for your time.

And once again, ladies and gentlemen, this does conclude your conference for today, we do thank you for your participation and you may now disconnect.

Q1 2022 American International Group Inc Earnings Call

Request a DemoDemo

AIG

Earnings