Q3 2022 American International Group Inc Earnings Call
As well as Aig's key financial metrics with respect thereto.
Or from those reported by corporate financial as such we will be intentional when referring to Aig's life and retirement segment versus corporate financial when commenting on financial results corporate financial will host its first earnings call Post IPO next week on November nine and its management team will provide additional details on the corbridge financial third quarter results with that.
I would now like to turn the call over to our chairman and CEO Peter Zaffino.
Thank you Quintin and good morning, and thank you for joining us today to review, our third quarter financial results, which I'm pleased to report were very strong.
Along with the excellent progress we've made on our strategic priorities.
Following my remarks, Shane will provide more detail on the third quarter financial results and then we'll take questions.
Kevin Hogan, David Mcelroy, and Mark Lyons will join us for the Q&A portion of today's call.
The third quarter represented an inflection point for AIG with important milestones achieved across the organization.
Our team once again demonstrated its ability to execute on significant strategic initiatives that position AIG for a strong future to apply discipline and the successful execution of these initiatives and to achieve high quality outcomes, even against the backdrop of very complicated capital and insurance markets.
Before I cover the third quarter in more detail I'd like to comment on the successful Corbridge financial IPO, which we completed in mid September despite a very challenging equity capital market conditions.
On our second quarter earnings call, we explained that volatility in the capital markets was significantly elevated and then attempting to complete an IPO at that time would not have been in the best interests of AIG corbridge for our stakeholders.
As a result, we decided to defer the IPO and revisit timing in the third quarter.
We knew that there would be limited open windows and remain committed to completing a transaction as soon as we believe an appropriate opportunity was available.
Throughout the summer our team did a remarkable job and work diligently on the operational separation of corbridge from AIG as well as to prepare the business for a successful IPO.
As we noted on our last call. We had already increased the targeted savings program at Corbridge from an initial range of $2 million to $300 million to $400 million within two to three years.
With the additional time available pre IPO the business accelerated certain actions and is now expected to deliver run rate savings of over $100 million by the end of 2022 ahead of our original schedule.
We were also prepared to secure the capital structure of corbridge prior to the IPO and access the debt markets in late summer during a short window when conditions became more favorable.
In August Corbridge issued $1 billion of hybrid debt securities and in early September drew down on our $1 5 billion bank facility to complete its initial capital structure.
Using part of the net proceeds from these debt transactions corbridge close out the remaining 1.9 billion due to AIG under a promissory note.
Throughout this time, we also engage in continuous discussions with our financial and other advisers about equity market conditions, investor sentiment and our ability to execute the IPO and a complicated market.
While equity markets remain uncertain volatility was not as extreme leading up to labor day.
We were confident we could complete the IPO within an acceptable valuation range and we continue to believe it was very important for the future of AIG and corbridge to establish <unk> as a public company in 2022.
Throughout the third quarter. We also made significant progress in the implementation of a new investment management model for AIG and corbridge.
As you know in mid 2021, we finalized a strategic partnership with Blackstone, which includes the transfer of $50 billion of Corbridge AUM to Blackstone with that number growing to $92 $5 billion over six years.
In addition earlier this year, we announced a partnership with Blackrock under which we will transfer up to $150 billion of liquid assets from both AIG and corbridge to date, we have transferred $100 billion of assets with $37 billion moving from AIG and $63 billion moving from Corbridge.
The complexity of operationally separating corporates from AIG as well as implementing our new operating model for investment management cannot be understated keep.
Keep in mind. These businesses have been in a combined structure for over two decades with aspects of each business shifting over time between segments until just a few years ago.
And until we announced our intention to separate corbridge from AIG in late 2020 investments was a standalone unit at AIG servicing all businesses across the organization.
Our partnerships with Blackstone and Blackrock enable us to accelerate the reshaping of our investment portfolios.
With respect to the financial commitments Corbridge made as part of the IPO I'd like to reiterate them as they too will create significant value for shareholders over time.
We continue to expect core bridge to pay $600 million in annual dividends with its first quarterly dividend of $148 million declared 15 days after the IPO closed and already paid.
To have the financial flexibility to repurchase shares or reduced aig's ownership stake as early as the second quarter of 2023.
And to achieve a return on equity of 12% to 14% over the next 24 months.
Completing the corbridge IPO within a very narrow window was a testament to the careful preparation hard work and dedication of our teams at AIG and corbridge until the quality of the business.
This was a major accomplishment for our teams and we are all very proud of the outcome.
Turning to other highlights in the third quarter adjusted after tax net income per diluted common share was <unk> 66.
General insurance delivered very strong performance and continued profitability improvement despite significant natural cats in the quarter.
The accident year combined ratio ex cats was 88, 4%, a 210 basis point improvement year over year, and the 17th consecutive quarter of improvement.
This result was primarily due to global commercial which had an excellent quarter with an accident year combined ratio ex cats of 83% or 590 basis point improvement year over year, driven by international commercial which had an impressive 84% accident year combined ratio ex cats.
The accident year combined ratio was 98, 2%, a 200 basis point improvement year over year. The calendar year combined ratio was 97, 3%, a 240 basis point improvement year over year.
Cat losses in the third quarter were $600 million.
Or nine eight points of the combined ratio Shane will break this number down for you in his remarks.
Our cat total includes losses from AIG re related to hurricane in which came in at $125 million.
This result reflects the terrific work the team has done to reduce peak zone exposure and our assumed reinsurance business, particularly in Florida, where we've reduced limits deployed by approximately 60% since 2018 and have minimal exposure to Florida domestic insurers.
Considering hurricane in and other cats in the third quarter, our cat losses validate the quality of our underwriting our reinsurance strategy and our ability to successfully manage volatility with.
With respect to <unk>, there was a favorable release in the third quarter of $72 million or 90 basis points of the calendar year combined ratio.
And life retirement, the business had another quarter of strong sales with premiums and deposits coming in at approximately $9 billion.
Up from $7 $2 billion in the prior year with positive year over year growth in each of its four business segments.
Effective capital management remains a priority for AIG in the third quarter, we repurchased $1 $3 billion of common stock and paid $247 million of dividends.
We also announced $1.8 billion of debt repayments, which we commenced in the third quarter and closed last week further strengthening our balance sheet and lastly, AIG ended the third quarter was $6 $5 billion apparent liquidity.
Now let me provide additional detail on general insurance in the continued sustained improvement and very good absolute performance in our underwriting.
When referring to gross and net premiums written note that all numbers are on an FX adjusted basis.
Gross premiums written increased 5% to $9 2 billion.
With global commercial growing 8% and global personal decreasing 3%.
Net premiums written increased 3% to $6 4 billion.
The growth was in our global commercial business, which grew 6% with global personal decreasing 4%.
North America commercial net premiums written increased 7% and international commercial net premiums written increased 5% or approximately 8%, excluding the impact of non renewal and cancellations related to known Russia exposure.
In North America commercial we saw very strong growth in net premiums written in Lexington led by wholesale property retail property in Gladfelter.
And international commercial we also saw strong growth in net premiums written in global specialty led by international specialty Marine and energy as well as property.
And global commercial we also had very strong renewal retention of 85% and our in force portfolio with North America up 400 basis points year over year to 86% and international at 85%.
As a reminder, we calculate renewal retention prior to the impact of rate and exposure changes.
And across global commercial our new business continues to be strong North American new business was $458 million led by Lexington International New business was $474 million led by specialty.
Turning to rate momentum continued in north American commercial with overall rate increases of 9% in the third quarter, excluding workers' compensation areas.
Areas within North American commercial achieved double digit rate increases. These included Lexington, which increased 20%, cyber which increased 32% and excess casualty, which increased 12%.
International commercial rate increases were 6% driven by Talbot.
EMEA Asia Pacific each of which increased 10%.
Our team analyzed those loss cost trends every quarter on our last call. We indicated that our loss cost trend view in the second quarter for North America commercial lines had migrated upwards to 6%.
Due to inflationary and other related factors that have resulted in an increase in property loss costs, we are increasing our aggregate loss cost trend of six 5% both in North America and international.
Overall, we continue to receive rate above loss cost trends, which contributes to margin expansion on a written basis.
Moving to global personal insurance, we continue our work across the portfolio to prioritize growth in A&H to reposition our capabilities in Japan personal and to transform our North America high net worth portfolio.
Starting with North America personal net premiums written declined 11% driven by warranty as well as our ongoing reshaping of our high net worth business that we've discussed on prior calls.
We continue to make progress in our high net worth business by reducing peak zone aggregation improve.
Improving the overall quality of the portfolio transitioning a portion of the portfolio, where appropriate to excess and surplus lines and enhancing the value we offer to clients.
Third quarter results reflect this repositioning with north America's gross and net premiums written declining as we continue to reduce exposures and increased reinsurance sessions to mitigate volatility.
North America personal insurance's premium declines were partially offset by continued momentum in individual travel and personal A&H and.
In international personal net premiums written declined 2% due to reduction in warranty that was partially offset by a rebound in individual travel as well as growth in A&H, which is our largest and most profitable international personal portfolio.
One item to note in the international personal insurance third quarter accident year loss ratio is that it reflects approximately $100 million of losses related to Covid claims in Japan and to a lesser extent Taiwan.
These losses were primarily due to the Japanese government instituting a policy relating to deemed hospitalizations, resulting from Covid, which impacted our A&H book.
This government policy was revised in the third quarter and as a result, we expect the issue to have a de minimis impact in future quarters, starting with the fourth quarter of this year.
Additionally, some of these losses related to cleanup expense benefits offered to small businesses, which AIG no longer provides.
Turning to <unk>, we conducted our annual review of approximately 75% of pre ADC loss reserves in the third quarter.
We apply conservative assumptions in this review as we believe it is appropriate to be prudent given current economic conditions.
As a result of our review we recorded $72 million of net favorable development for the third quarter or 90 basis points of the loss ratio.
This reflects $42 million of amortization from the ADC combined with $30 million of other favorable development. Our international operations were favorable and every region totaling $328 million, whereas North America was unfavorable by $256 million. Furthermore, in North America virtually <unk>.
Every line of business was favorable except for U S financial lines, which was unfavorable by $660 million net of the ADC predominantly in accident years, 2018, and 2019 and to a lesser extent 2020.
Let me unpack the drivers of unfavorable development in U S financial lines, a bit more because it's been an area of focus for us for several years given aig's history in this line of business the.
The unfavorable development was primarily driven by excess D&O written out of both the U S and our Bermuda business and while there was some movement on the primary side. The excess book was the most significant driver.
Dino prior year emergence continues to be driven by large losses. Many from security class actions and earlier accident years also experienced stacking exposures were primary mid access and high access policies were all exposed on the same insured.
This issue is similar to what we saw across the portfolio. When we first started our remediation strategy. The company had too much vertical limit on a per account basis.
As we've discussed on prior calls our underwriting strategy and ventilation standards were completely overhauled over the last few years, including U S financial lines to prevent stacking an overexposure to anyone insured and we've dramatically reduced limits deployed on individual policies obtained tighter terms and conditions.
And achieved higher attachment points on primary limits Shane will provide more detail on <unk> in his remarks.
Now I'd like to spend a few minutes talking about hurricane in which was a very tragic event on a human level that also left devastating physical damage.
AIG rapidly deployed significant resources to the affected areas, providing immediate support and infrastructure to help individuals businesses and communities rebuild.
Hurricane in is projected to be the second largest insured natural cat loss in U S history.
There remain a considerable number of variables contributing to industry ultimate losses, but based on what we know today total insurable losses are expected to be in the range of $50 billion to $60 billion.
For context, Hurricane Katrina and Irma, the first and third largest U S. Natural cat losses in the last 100 years are estimated at $85 billion $40 billion of insured losses, respectively on an inflation adjusted basis.
While hurricane Ian will have an impact on the broader insurance reinsurance and retro markets. We believe AIG is well positioned very importantly, we have strong and strategic relationships with our major reinsurers and we are confident in our ability to obtain similar levels of capacity for 2023 as we did in 2022.
In addition, we've improved and continue to improve our portfolio and therefore, the reinsurance we require we will reflect this during 2023.
And we see significant growth opportunities across the market, especially in the near term and for property, specifically and our significant financial flexibility will allow us to be nimble as we deploy capital at attractive risk adjusted returns to retail property wholesale property Talbot global specialties and AIG.
Hey.
With respect to the industry and markets more broadly as we noted on our second quarter call.
There are a few things you need to believe about the market prior to Ian in order to understand the impact Ian may have in the future.
If you believe as we do that the retro market was already contracting from last year's available capacity, which itself was reduced from the prior year and we anticipate our capital for 2023 was already going to further contract approximately 10% the retro market and the property cat market would have already been challenge even.
Priority. In addition to reduce capacity over 2022 party and there was also an expectation of increased retentions more specific peril coverage as well as rate increases, resulting from several factors, including increased frequency and severity of cats over the last several years keeping.
Keeping this context in mind 2022 will be another year with over $100 billion of natural cat industry losses.
Prior to 2017 on an inflation adjusted basis. There were only two years 2005, and 2011 that had greater than $100 billion of global natural cat losses and in both of these years losses were led by primary perils.
Since 2017 five of the last six years have had greater than a 100 billion in global natural cat losses with the predominant portion of losses in the aggregate coming from secondary perils. Furthermore, other issues potentially impacting one one capacity prior to Ian where the strengthening of the dollar euro denominated capacity likely decreasing due to.
C devaluation asset valuations inflation and demand surge from the post pandemic economy just to name a few.
When considering the impact of Ian and complexity adds two already challenging market conditions. There are few additional factors to consider in Florida residential total insured values have increased by more than 50% over the last 10 years, the significance of commercial losses, which will likely exceed 40% of the ultimate losses for.
In compared to the average of prior natural catastrophes were commercial losses were 30% of the ultimate loss.
The prevalence of commercial losses exacerbates, the complexity of cat modeling generally and the resulting deficiencies regarding appropriate cat load and pricing.
When considering the bottled estimated output for losses related to <unk>. For example, commercial losses were deficient by two five times and personal by 1.5 times after adjusting for inflation and other factors. Furthermore, when major cats occur in Florida, a disproportionate amount of the loss finds its way to the reinsurance market.
Of the proportional and low attaching excess of loss placements completed by Florida domestic insurers as their capital structures require significant reinsurance available.
Available reinsurance capacity is forecasted to be the lowest aggregate limit available in over a decade, making conditions in the property cat reinsurance market even more challenging.
Now turning to life retirement, adjusted pretax income was $589 million decreasing from $877 million in the prior year period, mainly due to lower alternative investment income and lower call and tender income.
There were no significant reserve adjustments arising out of the third quarter actuarial assumption review.
As I mentioned earlier life and retirement had excellent sales with premiums and deposits of approximately $9 billion up 23% year over year.
Sales of annuities over the course of 2022 have benefited from our relationship with Blackstone with $5 billion of assets originated year to date and private ABS direct credit lending and structured assets.
While our strategic partnership with Blackstone is still in the early days the quality and the performance of the portfolio relative to what the business could have done on its own are very encouraging sequential.
The sequential improvement in fixed income and loan portfolio yields accelerated with a 24 basis point improvement in base investment yields.
Year over year fixed income and loan portfolio yields also improved eight basis points confirming the business has surpassed year over year yield compression for the first time in recent memory.
Shane will provide more information on the life retirement segment and corbridge in his remarks.
Shifting to capital management, we continue to be balanced and disciplined as we maintain appropriate levels of capital in our subsidiaries for profitable growth opportunities across our global portfolio as well as reduced levels of debt, while returning capital to shareholders through share buybacks and dividends looking ahead.
With respect to share buybacks, we have $4 $3 billion remaining on our current share repurchase authorization and expect to end 2022 with over $5 billion of share repurchases for the full year.
And balance sheet actions, we've taken put us in a position of strength with significant financial flexibility that AIG has not had in many years.
As we looked at 2023, our lockup agreement with the underwriters of the IPO with respect to corbridge common stock expires in March.
Subject to ordinary course blackout periods. This means that our likely windows for a secondary offering of corbridge common stock in the first half of 2023 will be in mid to late March as well as mid may to late June .
Our current expectation is that the net proceeds will largely be deployed to share repurchases.
While we remain committed to consistently returning capital through share repurchases for the foreseeable future. We believe there will be attractive organic growth opportunities in general insurance and AIG re given current market dislocations that may prove compelling lastly, as we discussed on our second quarter call. We continued to.
Spec that post deconsolidation of Corbridge AIG will achieve a return on common equity at or above 10% Shane will provide more details in his remarks.
As we approach year end and plan for 2023, our path forward is clear with general insurance solidifying its position as a global market leader, the deconsolidation and eventual full separation of corbridge firmly underway and a significantly strengthened balance sheet with that Shayne I'll turn the call over to you.
Thank you Peter.
As Peter noted I will provide more detail on the third quarter results, specifically EPS reserve reviews.
Net income capital management.
Pat to achieving an above 10% return on common equity.
Adjusted after tax income was $509 million or.
<unk> 66 per share compared to $837 million 97 per share in the prior year quarter.
This was driven by a $741 million decline in net investment income offset by improved underwriting results in Germany insurance.
<unk> performance in life and retirement as well as improved Joey and other operations.
German insurance finished the third quarter with adjusted pre tax income of $750 million.
<unk> income was up $148 million, despite hurricane Ian offset by a $209 million decline in net investment income due to alternative investment returns.
Life and retirement contributed adjusted pre tax income of $589 million.
Which is $288 million below prior year quarter, driven by lower alternative investment all intend to raise them.
Other operations adjusted pre tax loss of $614 million compared to $562 million prior year quarter, mostly due to lower alternative investment income, partially offset by lower interest expense.
This quarter other operations included $16 million of additional expenses for setting up corbridge as a standalone company.
Excluding such expenses.
Improved by $17 million versus prior year.
As Peter noted results in general insurance reflect strong underwriting performance with continued combined ratio improvement of 240 basis points to 97, 3% an accident year combined ratio ex cat up 210 basis points to 88, 4%.
North American commercial accident year combined ratio ex cat improved 590 basis points over the prior year quarter to 84, 6%.
International commercial accident year combined ratio ex cat at 84% showed 640 basis points of improvement.
North America personal reported an accident year combined ratio ex cat of Huntington 12, 8%.
Primarily reflecting higher reinsurance costs lower ceding commission for high net worth business.
International personal accident year combined ratio ex cat was 99, 9%, mainly due to increased frequency of Anh claims in Japan and Taiwan.
Net cat losses, excluding reinstatement premiums for $600 million or nine eight loss ratio points in the third quarter.
Which included $450 million from Hurricane and an $84 million of Japanese typhoons.
Additionally, the reinstatement premium impact across all cat events was $55 million.
Switching to reserves nearly $40 billion of reserves were reviewed this quarter, bringing the year to date total to approximately 90% of carried three ADC reserves.
As Peter noted prior year developments, excluding related premium adjustments of $72 million favorable this quarter compared to favorable development of $50 million in the prior year quarter.
Prior year emergence in accident year 2019 at 2020 is largely due to policies written in 2017 2018 and accident year 2020 was largely due to policies and private not for profit where gross premiums have been reduced by 54% since 2018.
Our limits provided have been reduced.
By 85%.
In 2018, and Pryor AIG road multiyear policies that contributed to accident year 2019, 2020 losses. So far example, a policy written in 2017 at loss emergence in accident year 2020.
We have strategically shifted away from this business, which now makes up less than 1% of policies and those loans.
As we've discussed previously we overhauled the general insurance underwriting strategy, including U S financial lines, resulting in reduced limits deployed on individual policies tighter terms and conditions of higher attachment points on primary limits and termination of certain businesses.
Since 2018, we are seeing the following.
Total primary limits exposed in U S financial lines have been reduced by 32 billion on a comparative basis or nearly 80% through the third quarter of this year.
Total primary limits in both corporate and national Gino have been reduced by nearly 50% on a comparative basis on private and not for profit primary limits have been reduced by nearly 85%.
And in all cases rates have increased substantially over this time period.
Since 2018, we have achieved cumulative rate increases of nearly 85% in both primary corporate national D&O.
On our third quarter cumulative basis and over 115% in private and not for profit primary business.
Overall, we recognize bad news early but wait to recognize good news over time as we monitor developments, which we believe leads to a conservative view on our reserves along these lines. We have built in an expectation of higher inflation given the uncertainty over its potential impact on our reserves.
Turning to life and retirement.
Adjusted pre tax income was $589 million.
Compared to $877 million in the prior year quarter.
The decrease was due to lower alternative investment call and tender and fee income.
Partially offset by higher investment income from fixed maturity and loan portfolios.
Less adverse mortality and an improved outcome in the annual actuarial assumption review, which other than the acceleration of $57 million showed no meaningful net movement in reserves this year.
Product margins were attractive and in excess of long term targets in all businesses supported by robust new business origination from Blackstone.
Corbridge now expect spread compression to convert to expansion beginning in 2020.
Strong sales momentum continued in individual retirements.
$3 $8 billion in sales, a 16% increase year over year and led by over 100% growth in fixed annuity sales and a record $1 $7 billion in index annuity sales.
Group retirement deposits grew 11% driven by higher large client acquisitions in the third quarter.
The life business had solid sales with an improving mix of business in the U S and continued underlying growth in the U K.
In institutional markets premiums and deposits of $1 9 billion were up from $1 billion in the prior year quarter with larger <unk> on higher pension risk transfer transactions.
Mortality, including Covid losses was once again below original pricing expectations Harvard.
Covid losses remain within the original Insensitivities up 65% to $75 million reached 100000 U S population deaths.
Adjusted pre tax net investment income for the third quarter was $2 54 billion, a decline of $741 million or.
23% compared to prior year quarter.
$431 million attributable to life and retirement.
$665 million of the decline was due to alternative investment income and a $150 million was due to the juice pollen tendering offset by increase in the fixed maturity and loan portfolios of $153 million EMEA was up.
Our fixed maturity and loan portfolio saw lift in yield of 17 basis points in the third quarter and then on top of the nine basis points from the second quarter, and we expect 10 to 15 basis points of additional in the fourth quarter.
The new money yields on our fixed maturity and loan portfolio was approximately 120 basis points above the assets rolling off during the third quarter, roughly 60 basis points higher in general insurance, and 130 basis points higher life and retirement.
Now turning to the balance sheet and capital management.
We began 2022 with $10 $7 billion of parent liquidity and since then we have paid dividends totaling $768 million.
We repurchased approximately $4 4 billion or <unk> 77 million shares of common stock.
Bringing our ending count to 747 million shares a 9% reduction year to date.
Including recently announced bond make whole calls of $1 8 billion.
We established the corbridge debt structure of $9 4 billion and reduced nine $8 billion by AIG debt.
We've completed the carbon IPO with its parent liquidity at $1 7 billion.
AIG received $1 $6 billion of net proceeds from the IPO.
And we exited the third quarter was $6 $5 billion of AIG parent liquidity, including $1 $8 billion to fund the make whole calls.
The third quarter, and our GAAP leverage was 36, 5% or 540 basis points increase quarter over quarter. The decrease in OCI added 320 basis points to the overall leverage ratio with over 80% of the change relating to life.
Aig's debt leverage ratio, excluding <unk> was 27, 5% up 220 basis points from the second quarter as a result of the issuance of coverage that is planned prior to the IPO.
Including the impact of the make whole calls post quarter end, Aig's, Leverages 34, 7% or 26% excluding <unk>.
Total adjusted return on common equity was three 7% down from six 5% <unk> 21.
Decrease was mostly caused by decline in net investment income.
And so the risk based capital ratio a primary operating subsidiaries remain profitable well capitalized general Insurance's U S pool fleets unlicensed retirements U S fleet RBC ratios, both above our target ranges.
We continue to make progress on the four priorities to achieve a 10% or greater return on capital employed they are underwriting profitability.
A leaner operating model separation of the life and retirement business and capital management.
Two points of improvement in combined ratio.
$500 million of expense savings.
$5 billion in share repurchases approximate to one point improvement in <unk>.
We expect to achieve expense savings from multiple areas, including the remaining $350 million in savings yet to be realized from AIG 200.
Roughly $300 million of corporate.
Approximately $400 million of interest expense that will be transferred to coverage.
<unk> expense savings as we transitioned AIG a leaner operating model.
Additionally, we have seen a 26 basis point yield uplift in the fixed maturity and loan portfolios in the past few quarters over time, we expect the yield uplift from net investment income could add one to two points RSC.
We are confident about delivering on our 10% plus our oce commitments and we will continue to execute on our prudent capital management strategy, which will reduce the share count to $600 million to $650 million range, while maintaining leverage at 20% to 25% level post deconsolidation.
That I will turn the call back over to you Peter.
Thank you Shane and operator, we're ready for questions.
Thank you Peter if you'd like to ask a question and has not already entered the queue Press star nine to raise your hand. Once you have been called on please press Star section mute yourself and begin with your question.
When you have concluded with speaking press star sector to meet yourself again.
Our first question will come from Elyse Greenspan with Wells Fargo, you May mute your line.
And once again the screen stand that is star six UN mute your line.
Operator, well go to the next.
Next one in the queue and then we'll come back to Elyse.
Sure. So our next question comes from John Guinee from Dowling and partners Jonathan Your line.
Okay.
Yeah.
And you May dial star six on your keypad to mute your line.
Okay.
Yeah.
We want to try the next one in the queue operator please.
I am sorry, lets J J, Paul Newsome from Piper Sandler.
Mr. Nathan Amanda your line.
Good morning.
Sorry about the confusion from the folks.
Folks on the questions hopefully you can hear me.
Actually wanted to ask you about.
A little bit different broad M&A question about the turmoil in the market.
I think obviously, we've seen environments, where there was quite a bit of change.
And I don't know if you've taken that you're seeing.
And there may be the sellers getting a little bit more willing to sell given the volatility of the environment.
General thoughts on M&A would be fantastic.
Yeah. So let me first take a step back. Thank you for the question and talk a little bit about our capital management strategy and as we've outlined in the past that.
Focused on.
Putting additional capital in the subsidiaries for organic growth because we see great opportunities, we worked very hard on reducing leverage so while we've leveraged up corbridge.
We have been redeeming debt at the AIG level focused on returning capital to shareholders.
Through share repurchases and we'll look very hard at the dividend for 2023, and our view on M&A is you know where there are compelling opportunities I think you have seen weakness in this quarter in terms of some of the reporting.
But our strategy is much more whereas compelling where our strategic and I think it would be used gladfelter as an example.
Gladfelter was a best in class program underwriter that had great distribution.
We were not performing well and our programs business. So we were able to reduce our position.
And programs and bring Gladfelter and Tony can P Z and the leadership team to AIG and they just have thrived here together, where we've improved combined ratios, we've grown and we've improved our overall performance I think we will look for.
Ways, we don't really have portfolio that need to be rehabilitated like we would have the programs three years ago, but we could find those bolt ons and things that are additive to AIG, where we are both better from being together. So I think that's how we would think about acquisition.
And the sort of medium term.
Okay.
She has different question, maybe two parts on balanced in the context and the reinsurance business.
In the context of <unk>.
Broader steps that you folks have done.
To reduce cat exposure.
There may be a little bit about the tradeoff I mean, because obviously one of the big achievements that you've done Andrea G is reduced.
Cat exposure immensely.
<unk>.
How do you think about sort of as we go forward the tradeoff.
Yeah.
There seems to be a lot of opportunities.
Places like property cat.
Exposed areas, but especially.
Especially the reinsurance market, but honestly.
Hum.
There's that tradeoff pretty aggressively.
Yes, I think the market that's in front of us is going to reward those who are disciplined leading up to it.
We have been.
<unk> been very thoughtful and careful about reducing aggregate, where we felt we had too much in in peak zones.
As well as too much exposed to natural catastrophe. So we've talked over time that we've reduced enormous limits over the period that we've been re underwriting now on the AIG reassume side. That's been just discipline, we didn't like the risk adjusted returns as we cited in my prepared remarks that we took down the aggregate by <unk>.
60% and I think that the premiums if you look on a gross basis in terms of cat <unk>.
Year over year will be down like 40%.
And actually some of that would be greater in North America.
We will look at opportunities in terms of we have plenty of aggregate forecast.
But it all be what's the best risk adjusted opportunities I mean, the good news is we have multiple entry points. So we have less than 10 on an E&S basis, we have retail property capabilities.
Across the World, we have a terrific syndicate in Talbot backend access specialty classes that are more first party, we have a tremendous global specialties business that did phenomenal I think in the quarter and showed that they're sort of global leadership and then we had the assumed business off for AIG re where where there are opportunities.
To deploy capital there are we are going to be prepared so I think that the the market.
We will be.
Very good for us to deploy more property, but again, we'll be disciplined.
And we'll see what really transpires over the next 60 to 90 days.
Next question Anthony Thank you for your thank you yeah. Thank you.
And our next question comes from Meyer Shields from <unk> Manny Your line.
Great and I think their desk.
Yes, Matt good to talk to you.
Okay.
And Peter is hoping you could talk a little bit about casualty loss trends, because you mentioned property as one of the reasons or raising the overall trend six and a half and we obviously saw the finish line.
Issued that at least superficially could bleed into other casualty lines can you sort of close the loop on that.
Sure I'll ask Mark to provide more detail I think what we do in our prepared remarks to say that we're looking at property casualty all of our lines of business in great detail really what's been driving the you know the upper end of the range is off has been more of a first party business because of all the economic factors that are driving but mark spends enormous time with the staff.
And the underwriting claims looking at all the casualty trends as well Mark do you want to provide more detail. Please.
Sure Peter and thank you. So yes, another follow up on that there would be.
Put it this way the excess casualty loss cost trends are double digits.
And the primary trends arent too much lower than that but there single digits, but on the upper end. So we think we think we've captured it in a pretty good fashion, but the incremental move from quarter to quarter. Peter to noted is marginally increases on the liability side, but it's mostly.
Two to be much more apparent.
<unk> on the property loss cost side, which.
At a weighted average basis drives it up.
Okay, that's very helpful.
Second question I guess in recent quarters, we've been hearing about increasing competition in.
I guess in excess public D&O, which seems a little bit.
Are you seeing any other individual product line, where there's incremental buffer.
Thanks, Meera, Dave why don't you talk a little bit about.
What we're seeing in D&O, we really are not seeing it in other lines to the extent that what's going on in D&O, but we've been very disciplined and Dave can provide a little bit more context.
Thank you Peter and admire the you know.
Rates rates have rolled back after four years of cumulative increases north of 100%.
And other P&L lines.
Yes, it's.
I'm not sure I'm not sure the logic path of that.
At the same time.
We also have to discern different markets sitting inside what would be the public D&O. So primary.
Versus first access versus high access versus side, a and classes and market cap differentiation all those things have to be factored in I think certainly in our book.
Which has a waiting to primary theres less there's less pricing pressure.
Pressure in the primary there's respect for the company at Liza Tower claims reputation multinational and underwrite our reputation with distribution and clients. So so that's a different piece Meyer that I'd say excess has been and will be a commodity product in many lines.
<unk> is showing up now it often shows up in excess casualty and May show up in excess property, but it right now is showing up in.
And in D&O and once again, the risk matters the account matters to commoditization it might be there. Okay. It's it's I look at that as something maybe antithetical to.
Divert a county and loss that's existing in the business and one that needs to be managed and managed by each individual company and you will have that sort of.
A different portfolio that others may chase that down and I would say that the responsible markets will probably have a renewal retention that's lower than the excess capacity.
And that will be showing up in future quarters. It does not make sense. So I'll be very Frank Alberta Calgary of loss is real right now whether in securities class actions are derivative cases. So so it's just supply demand competition I think for our portfolio, we're confident because of the control that we have and the way.
That we have between primary and site thats tied to primary and the and the financial strength of AIG that we will be there for the a long duration claim so.
With that I'll turn it back thank you.
Our next question of Mike and Thanks, and our next question.
Our next question comes from Elyse Greenspan from Wells Fargo.
Hi, Thanks. Good morning can you guys hear me gasoline, yes, sorry about the glitch.
Thank you so my first question.
I know the timing of the deconsolidation depends upon secondary offerings of corvid, but when you do ultimately consolidate do you envision at that point that general insurance.
As a standalone entity it will be running at a 10% Roe.
Yes, we do I mean, you know again like you said the timing of deconsolidation is subject to market conditions and the.
The volatility in the market, but if you take that away and look at a normal course as we get through 2023.
When we deconsolidation, we expect will be you know.
With all the variables that Shane outlined in the 10% of Ari will be at that 10% Roe.
Thank you and then my second question is on the financial lines adverse development. I know you guys mentioned part of it right into the multiyear covers that AIG is right but.
Was there an impact on your current accident year is the pull forward of the charge there.
There wasn't.
Cause of the changes that you made in the in the business over the years.
Mark.
Would you take that one please.
Sure Peter and Hello English.
Good to hear from you. So yes, that's a good question Alicia that's actually the right question.
So yes.
Think of it like this Shane mentioned that we did 40 billion of reserves this quarter that makes it 90% year to date.
10% remaining.
And the review was all our reviews have been comprehensive, but I would say, particularly so this quarter with improved actuarial methodologies, but really augmented with a rigorous review of individual cases with the claims department, specifically focusing on downside risk.
That was more qualitatively or affiliate incorporated.
I guess couple of things first thing would be that because of that concentration of a real detail the financial reserve.
Reserve position is strong firstly.
Secondly, as you mentioned the multiyear policies, yes, that's that has an impact and probably a larger impact that you might think.
Which kind of preceded Dave and the team and that excess D&O and private not for profit at the major drivers as Peter.
Peter Shayne highlighted but I really do not see that as a as a follow forward into more recent accident years.
Let me just give you a few points on that so Dave talked about it a bit indirectly, but I think more directly from my point of view a lot of risk selection, which is what it is really all about at the end of the day back back in 2017.
42% of our Insureds or given that there was a class action Securities class action lawsuit, we had 42% of them on a primary short basis, whereas now it's 12. So that's a clear risk selection difference, but from the severity point of view of how much capacity gets placed on those from.
It's an 80% reduction on the capacity provided to those given that they add security class action suits. So both elements of that I'd say are incredibly strong and point to the capacity deployment.
Those years, so more recently as well as the risk selection, which is the core to everything but a couple of other quick thing I know you like stature lease so why do I think it especially on the floor that we say are more.
More susceptible than others.
Cause that so on.
Primary not for profit.
For example.
When we look back at prior.
Prior policy years, those accident years, which is the real driver of underwriting decisions and improvement.
The loss ratio for policy or 'twenty one.
18 months of development is 80% lower.
Yeah.
Right.
Yeah.
And on assets.
Longer term.
You have a similar.
Reduction in the loss ratio.
Yeah.
So all of these facts point to a much stronger book of business.
And increased confidence about what's the most recent accident years are as valid. So we're not seeing any change to those loss ratios.
Great. Thanks, Mark Thanks, Elyse next question operator.
Our next question will come from Brian Meredith from UBS Your line.
Hey, Thanks can you hear me, yes, Brian . Thank you nice to talk to you great awesome.
Yes.
Peter I'm, just curious theres been a lot of debate about how the.
Regarding here of the property market.
In effect into the casualty markets just curious your thoughts there.
Specifically casualty re and then on the primary side as well.
Yes, Thanks, Brian .
Again, we will see as we get to you.
One one in terms of what the pricing environment will be it will be led by property I talked about in my prepared remarks and the capacity.
Issues in how reinsurance decide to deploy their capital is going to be.
Very discipline I do think on the primary side of casualty there will be some impacts we look at just the normal economic.
<unk> headwinds, but also just deploying capital so it's not going to be a single just we're going to get rate on property and not.
Pay attention to casualty youre going to look at it in a holistic way.
Dave and I have spent a lot of time on this and we strongly believe that excess and surplus lines and casualty.
We'll grow more than a minute.
On a same store sale basis, meaning that the opportunities that exist today.
We'll find I think more growth in E&S and the specialty classes and I think that the rate will reflect.
You know what the exposures are and we would see the casualty lines being affected as well, but again, we will see when we get into 2023.
Great and then my second question I'm, just curious looking at your North American commercial written premium growth given the rate and exposure that you guys are experiencing right now I would've thought that you'd see close to double digit growth in that line in that area not just 7% is there anything unusual happening there.
So Dave why don't you.
Yes.
Add on in terms of what really happened in financial lines with M&A and IPO, but no. Brian we saw very good growth, we outlined that in my prepared remarks of Lexington property Gladfelter.
Primary casualty so we saw real growth across North America, and Delta was strong had a little bit of a headwind.
From financial lines, just based on M&A and IPO, but they may be you can just cover that a little bit.
Yes, Brian .
I think when you unpack it and you really look at each of the key businesses, whether it's property or casualty.
Or even our programs group in Gladfelter, there was strong growth J E T.
The vagaries of financial lines showed up here. Okay. It's always it's tied to the stock market is storage really tied to the stock market a lot of new business growth is tied to the stock market and particularly last year, where you might have had a number of stacks.
And Ipos and they are nonrecurring in 2022.
So and then there's runoff business. That's also tied to the stock market. So.
What we saw it's really a financial lines and I would call. It a financial lines disciplined underwriting we werent chasing anything into this quarter and therefore the day. The the growth was down we're confident around the book, but it's it's and that's actually where you would say the underlying growth.
<unk> as a significant part of our portfolio wasn't showing up in <unk> for the right reasons, Okay. The stock market as a dictate.
Of what happens in the and the opportunities in financial lines.
Great.
Thank you Brian .
I think we have time for one more question.
And our final question will come from Alex Scott from Goldman Sachs.
Okay.
Hi.
First one I had for you is on the capital deployment commentary.
Getting down to 600 to 650 share count I just wanted to see if you could unpack the sort of underlying assumptions are.
It may be included in that.
And then maybe help us think through when we think about the excess capital you have today.
Potential core bridge.
Secondary proceeds.
How would you think about debt reduction versus share repurchases and how that sort of triangulate for 600 to 650 <unk>. Thanks, yes. Thanks Alex.
We've talked about our capital management strategy over the past several quarters.
And focused on capital for growth debt.
Debt reduction share repurchases and as I said going into 2023, we're going to focus on the dividend.
The primary <unk>.
Use of capital will be used for share repurchases and again like Corbridge I think has done very well in a very challenging IPO market. We expect the value to continue to move in a very positive direction based on how strong the businesses and so I'm not going to get into like the p/e today versus the P of AIG.
I think that the best use of capital over the foreseeable future is going to be to reduce.
Share count to get us to that six to 650.
$1 million range now if I can spend two seconds on outlining what we've done since we've announced Blackstone in July of 2020. Once you go back into.
Early third quarter of last year, and we set up core bridges financial structure not only did we did the IPO of 12, 4%, but set up their structure of $9 4 billion of debt $1 $7 billion of parent liquidity.
During that period, we've reduced ongoing detert AIG by approximately $12 billion, including the $1 $8 billion make whole in October we paid common and preferred dividends of $1 3 billion during that period of time, we've also repurchased over $100 million of common shares which is over $6 billion and we've put.
Round $2 billion of capital in our subsidiaries for growth. So that's a lot of capital deployment all of it is set up to strengthen the balance sheet.
Strength in Aig's strategic.
Positioning.
As well as making sure that we can continue to put the capital in the subsidiaries to drive organic route. So we're really pleased where we are and we think that the path forward.
With the secondary offerings will put us even a stronger position.
Got it Thats helpful.
And maybe as a follow up question just on reinsurance costs is there anything you can tell us about your spend on your.
Natural cat.
Reinsurance program as it stands today.
I appreciate that you probably don't want to provide too much in tip. Your hand, one way or the other in terms of the way your work through negotiations on that next year.
But any way to help us think through that.
The current cost and.
Anything we should consider when thinking about the materiality of that headed into a harder insurance market.
Yeah, I mean, the first thing I would say is AIG is not an index of the market rhetoric.
We are very different in terms of how we purchase reinsurance just based on the size and scale.
Geographic diversity different products and so like when reinsurers deploy capital and that's why I say, we have very strategic relationships, because theres enormous continuity on our programs year over year, even when we.
Changed structure, so I think that we've gotten commitments from all of our major reinsurers that they'll be able to deploy the same amount of capital to the extent, we need it for our property cat and it's number one number two is that.
The portfolio has changed I mean, you know when you are continuing to reduce gross exposures you don't always need the same structures and so I think we changed the structure in 'twenty, two which was to buy a sort of global occurrence that sits above our per occurrence layers across the world and reduce the aggregate limit.
And so we're looking at structures right now I mean, I think youre going to get no matter, who you speak to.
The truth will be it's going to be a very late renewal season.
Retro needs to be put together nobody's quoting now theres not going to any firm order terms for quite some time.
And I think that we're just going to have to work through the market, but I. Just don't think that AIG is going to be in a detrimental position just based on.
Our portfolio structure partnership and actually our performance and.
I think the reinsurers would say you have to ask them, but what they tell me is that we've exceeded expectations on all the variables in terms of the commitments. We made in terms of the underwriting and that's on property and casualty. So I think we'll be very well positioned and will provide updates as we get further along into the renewal season.
Okay. Thank you I want to thank everybody to.
Today for your time and I hope everybody has a great day. Thank you.
And once again, ladies and gentlemen, this does conclude your conference for today. Thank you for your participation you may now disconnect.