Q4 2022 American International Group Inc Earnings Call

February 16, 2023

Good day and welcome to Aig's fourth quarter 2022 financial results Conference call. This conference is being recorded now at this time I would like to teleconference over to Quentin Mcmillan.

Please go ahead.

Thanks, very much and 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 Form 10-K, and our 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 applicable securities laws AIG is under no obligation to update any forward looking statements. If circumstances are management's estimates are opinions should change. 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.

Presentation, all of which are available on our website at www Dot AIG Dot Com. Finally, today's remarks, we'll discuss the results of Aig's life and retirement segment and other operations on the same basis as prior quarters, which is how we expect to continue to report until the deconsolidation Corbridge financial incorporated AIG segments and U S GAAP financial results.

Well as Aig's key financial metrics with respect their to differ from those reported by Corbridge financial corporate financial will host its own earnings call Tomorrow on Friday February 17th and will provide additional details on its results 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 fourth quarter and full year 2022 results.

Following my remarks safer will provide more detail on certain topics, including life retirements results on our path to a 10% or greater Aro CE and then we will take questions.

Kevin Hogan and David Mcelroy will join us for the Q&A portion of the call today I will cover four topics first I will provide an overview of our fourth quarter financial results second I will review highlights from the full year, including some of our major accomplishments, which were remarkable given the very challenging.

Conditions, we faced throughout 2022, and the equity markets and the insurance industry.

Third I will unpack in some detail market conditions, leading up to January one reinsurance renewals, where we saw significant shifts that we believe will impact the industry throughout 2023 and perhaps longer.

Suffice it to say this one one renewal season was the most challenge that many including myself I have seen in our careers.

And fourth I will outline our 2023 priorities and outlook regarding capital management.

Turning to our results I would like to welcome Sabre to the call. We are fortunate to have her in the interim CFO role, while Shane is on medical leave.

<unk> Shane I am personally deeply appreciative of the tremendous outreach from many of you. The number of people are saying good wishes for a speedy recovery is incredibly meaningful to me and our management team and particularly to Shane and his family. We look forward to welcoming him back to AIG.

Now, let me begin with a brief overview of Aig's fourth quarter results.

Adjusted after tax income in the fourth quarter was $1 billion and $1 36.

Per diluted common share.

We repurchased approximately $780 million of AIG common stock and redeemed $1 $8 billion of debt.

AIG paid $243 million in dividends in the fourth quarter and corbridge paid two dividends totaling approximately $300 million following its IPO in September of 2022.

Turning to general insurance in the fourth quarter the accident year combined ratio ex cats improved 140 basis points year over year to 88, 4%, representing the 18th consecutive quarter of margin improvement.

Notably underwriting income in the fourth quarter increased 27% year over year to $635 million.

Global commercial drove the year over year increase achieving an accident year combined ratio ex cats of 84, 1%, a 380 basis point improvement and a 69% increase in underwriting income.

Global personal reported accident year combined ratio ex cats of 104%, a 610 basis point increase from the prior year quarter as we continued to reposition this portfolio.

Moving to global commercial on an FX adjusted basis, North America commercial net premiums written increased 3% and international increased 2%.

Global commercial had strong renewal retention and its in force portfolio and new business continued to be strong.

Turning to rate momentum continued in North America commercial with overall rate increases in the quarter of 3%, 7%. If you exclude financial lines and 9%. If you also exclude workers' compensation.

These rate increases were driven by retail property at 15% Lexington at 12% and excess casualty at 9% and the exposure increase in the North America portfolio was 3%.

International commercial rate increases were 4% driven by Asia Pacific at 9% and EMEA at 7% and the exposure increase in the international portfolio was around 2%.

Pricing, which includes rate plus exposure was up 6% in both North America and international.

While we experienced downward pressure on rates in certain lines early in the fourth quarter. We saw a re acceleration of price increases towards the end of the quarter. For example, retail property was up 15% in the fourth quarter with rate improvement of 24% in December when market impacts from increased catastrophes start to be felt.

Okay.

We saw similar upward movement at Lexington, and particularly within the property portfolio with December being the strongest rate increases in the fourth quarter.

Overall, we continue to earn rate above loss cost trends, which contributed to positive margin expansion.

And global personal starting with North America net premiums written declined 7%, reflecting our ongoing reshaping of the portfolio, particularly in the high and ultra high net worth businesses that are part of PSEG.

Later in my remarks, I will discuss our announcement on Monday relating to PSEG and our partnership with stone point capital to create a new managing general agency or MGA.

In international personal net premiums written slightly increased by 1% on an FX adjusted basis due to a rebound in travel and growth in A&H.

Now turning to the full year, we made tremendous progress throughout 2022 on a number of key priorities.

I could not be more pleased with our team's ability to execute on multiple complex strategic objectives across AIG at once.

Our most significant and impactful accomplishment was completing the IPO of corbridge in September of 2022, despite the very challenging equity market conditions, we had to navigate.

Notably Corbridge was last year's largest IPO in the U S and the largest financial services IPO since 2020.

We also continue to grow underwriting income in general insurance, which increased approximately $1 billion year over year. The second year in a row with over $1 billion of growth in underwriting income.

As I noted on last quarter's call. We also reached significant milestones on AIG 200 that have modernize our technology infrastructure and operational capabilities, while executing on an exit run rate savings of $1 billion six months ahead of schedule.

We also changed Aig's investment management strategy and structure through successful partnerships with Blackstone and Blackrock and we are seeing the benefits of these partnerships cross AIG and corbridge.

Turning to full year consolidated financial results for AIG. Adjusted after tax income in 2022 reached $3 6 billion and was $4 55 per diluted common share.

We returned $6 1 billion to shareholders through $5 1 billion of AIG common stock repurchases and $1 billion of dividends.

We finished 2022 with 734 million shares outstanding a 10% decrease since the end of 2021 and.

And we executed on a number of capital management actions to establish the Standalone corporate capital structure, while reducing AIG debt by roughly $10 billion.

Consolidated financial debt outstanding was approximately $21 billion at year end was $11 $8 billion at AIG and $9 4 billion at Corbridge.

Now let me cover full year 2022 results for general insurance.

As you know an important aspect of our turnaround over the last few years has been instituting a culture of underwriting excellence and our rigor in this area is now clearly benefiting our financial results.

General insurance achieved underwriting income of $2 billion in 2022, despite the industry again experiencing over $100 billion of insured natural catastrophe losses, and we exceeded our combined ratio commitment by achieving a sub 90 accident year combined ratio ex cats and all four quarters.

As I've noted on prior calls and it's worth repeating since 2018, we completely overhauled our underwriting standards and overlay the standards with our comprehensive reinsurance program that can adapt to market conditions and to our portfolio as it continues to change and improve.

Overall gross limits deployed were reduced by over one two trillion. During this period, we also meaningfully and deliberately shifted our global portfolio mix in order to reposition AIG for the future.

For example, global commercial now represents 74% of our net premiums written up from 57% in 2018, and Lexington is now 17% of our North America commercial business up from 12% in 2018.

If you exclude Validus re Lexington is now 23% of North America commercial.

As a result of this work our current portfolio is very well positioned for 2023.

I will discuss in more detail later when.

When I review January one reinsurance renewals, how market dynamics have shifted and how AIG should benefit as we look to capitalize on attractive opportunities for better risk adjusted returns.

Now let me highlight a few of the key businesses in general insurance that contributed to our performance in 2022.

Lexington, our market, leading excess and surplus lines business had 18% net premiums written growth in 2022 up over 50% since we transitioned this business to focus on the wholesale market.

This business also increased underwriting profitability, excluding cats by 60% and it achieved a sub 80% accident year combined ratio ex cats for 2022.

Gladfelter continued its terrific performance growing net premiums written by 14%.

Increasing underwriting income and achieving an 85% accident year combined ratio ex cats.

The acquisition of Gladfelter allowed us to significantly elevate the quality of our programs business.

Global specialty which includes our global Marine energy and aviation businesses grew net premiums written by over 15% on an FX adjusted basis.

This was driven by strong client retention of 88% new business growth and rate increases across the portfolio global specialty generated strong earnings in 2022 with an impressive accident year combined ratio, excluding cats of 80%.

These are just some examples of businesses that we prioritized last year based on their market position, our differentiated value proposition to clients and our ability to generate strong underwriting results.

We see great opportunities for these businesses going forward.

And they are strong anchors for AIG that we expect will contribute to profitable growth in 2023.

Our global personal business performed well considering some of the post pandemic headwinds we saw in the first half of 2022, and our strategic repositioning of the business.

Also as I mentioned on our last call the impact from deemed hospitalizations in Japan and to a lesser extent, Taiwan contributed over $160 million in losses in 2022, having a 290 basis point impact on the international personal accident year combined ratio this accident and health product was discontinued.

<unk> in 2022.

Turning to full year net premiums written general insurance grew 4% on an FX adjusted basis, driven by 6% growth in global commercial.

North America grew 7% and international commercial grew 6%.

We had strong renewal retention in our in force portfolio with North America, improving by 300 basis points to 86% and in international achieving 86% for the full year.

And as a reminder, we calculate renewal retention prior to the impact of rate and exposure changes.

Turning to underwriting profitability for the full year 2022 was another year with strong progress the general insurance accident year combined ratio ex cats was 88, 7% an improvement of 230 basis points year over year.

The full year saw a 180 basis point improvement in the accident year loss ratio ex cat and a 50 basis point improvement in the expense ratio.

Global commercial achieved an impressive accident year combined ratio ex cats of 84, 5% an improvement of 460 basis points year over year.

The loss ratio was the biggest contributor with a 330 basis point improvement in the combined ratio, including cats and <unk> of 89, 6% represented a 920 basis point improvement year over year.

The accident year combined ratio ex cats, and global personal deteriorated 430 basis points to 99, 2% for the reasons I've outlined before.

Now, let me turn to reinsurance renewals at January one of this year.

As I stated on our last earnings call. We knew this renewal season will be very challenging and lead to fundamental changes in the market that would impact one one renewals.

The market was faced with a combination of factors. The added further pressure to dynamics that we're already creating considerable stress.

We had top global macroeconomic trends.

We had geopolitical uncertainty.

We had short term pressure on the asset side of the balance sheet as a consequence of rising interest rates and inflation and currency fluctuation we.

We had additional natural catastrophe losses late in the fourth quarter, and increasing frequency and severity of secondary perils continue.

In 2022 ended with over $130 billion of insured natural catastrophe losses.

<unk> 2022, the fifth costliest year on record for insurers with five out of the last six years, having exceeded 100 billion.

Hurricane and in particular proved to be a catalysts that change market dynamics, even more significantly than expected and ultimately lead to shifts in the market that require the industry to rethink reinsurance placements and the commensurate changes that needed to take place in the primary market.

The unprecedented levels of natural catastrophes on a global scale massively impacted the reinsurance market and a couple of ways.

Increased natural cat activity has resulted in elevated property cat ceded loss ratios with average incurred loss ratios from 2017 through 2022 exceeding 85% compared to 2012 through 2016, when average incurred loss ratios trended below 30% of.

<unk> deterioration.

And over the last five years secondary perils contributed more than 50% to ultimate loss when compared to primary perils.

These market dynamics also impacted the supply of reinsurance and retrocession on capacity and the cost of capital increase for the industry, which impacted almost all lines of business and territories, regardless of loss experience on top of all of this very little new capital entered the market.

Available capital is estimated to have decreased approximately 20% year over year.

Now, let me outline what happened in the property cat and retro markets in particular due to the high level of cat losses in 2022, which were further exacerbated by events in the fourth quarter.

50% of global property cat limits, which we estimate to be $425 billion.

Renew on January one approximately 70% of global retro limits estimated at $60 billion.

Incept at January one.

Reinsurers heavily relying on peak peril retro protection face greater pressure as a result, whereas larger more diversified reinsurers were better able to manage retro capacity constraints.

As a result, our majority of programs placed on January one saw insurance companies forced to increased retentions.

Despite these market challenges AIG navigated this complex and intense renewal season extremely well.

We knew we were in a strong position heading into January one given the repositioning and the improved quality of our global portfolio, coupled with our considerable efforts to reduce our gross portfolio peak exposures.

As we expected this allowed us to capitalize on many attractive opportunities and this proved to be a competitive advantage as we had an exceptionally successful renewal season.

It's also worth noting that aig's reinsurance purchasing is by design more heavily weighted to January one then the wider market.

The benefits of this are twofold.

Concentrating the bulk of our purchasing a January one allows AIG to maximize the outcome across all of our reinsurance placements.

And we have clear line of sight on our reinsurance cost for the full year, which is particularly valuable in a market, which we believe will continue to be incredibly challenging.

Some of the highlights of our January placements include the following with.

With respect to property catastrophe placements, we obtained more limit than we purchased in 2022.

And we believe we had the lowest attach and points on a return period measurement for North America Windstorm and earthquake amongst our peer group and our modeled exhaust limits are at higher return periods compared to last year for each of our placements.

These placements should further reduce volatility which is something we remain very focused on and they provide us with significant balance sheet protection in the event, one or a series of significant catastrophe events occur.

Specifically, we separately made appropriate changes to our North America property cat treaties to reflect our improving portfolio with retention of our commercial cat portfolio attaching a $500 million and Lexington in our programs business, having an attachment point of $300 million.

The property cat aggregate cover that we placed has four retentions before attaching and for North America, Japan and rest of world. It now could attach in the second event, which is an improvement from 2022.

Our property cat per current structures largely stayed the same for international and we believe they are market, leading with Japan's retention staying flat at $200 million and the rest of world attaching at a $125 million.

Many factors improved our overall property cat reinsurance program with highlights being.

We were able to attain approximately 6 billion of limit, including increasing our per occurrence excess of loss placements.

We maintained low attachment points on a model basis.

We received support for a 500 million aggregate placement.

And our overall spend for AIG increased less than 10% on an absolute and risk adjusted basis versus 2022.

With respect to PSEG, we accelerated portfolio remediation, which is driving further gross exposure reductions in key cat exposed states, where loss costs inflation and necessary modeling changes have not kept pace.

This allowed us to reduce the total limit purchase for the PCB specific cap program, which partially offset increased pricing pressure due to hurricane in.

Overall casualty renewals, both excess of loss in our quota share placements renewed close to expiring terms on a risk adjusted basis with no impact on ceding commissions.

Our reinsurance partners maintain their support for AIG with consistent capacity deployment and reinsurance terms and clear recognition of the quality of our portfolio.

The outcomes, we achieved at January one also reflect the value of the investments we have made in our reinsurance strategy and coupled with our relationships and credibility with reinsurance partners are a testament to the confidence the reinsurance marketplace has an AIG and its management team.

We appreciate the ongoing support we have received from our reinsurance partners.

As we look ahead to 2023, the world faces, many uncertainties and uncertain times, our role as a market leading global insurance company is even more important.

With the momentum we have built and the strength of our portfolio AIG is now extremely well positioned to strategically grow and lead the market by providing thoughtful expert advice on risk solutions for our clients distribution partners and other stakeholders.

By 2022, we.

We have set out ambitious strategic and operational priorities for 2023.

We will continue to improve and invest in lines of business in general insurance, where we see significant growth potential, notably Lexington in global specialty.

A highlight Lexington, because it is presented and we will continue to present tremendous growth and profitability opportunities for us.

And early indications are that the rate momentum we saw in this business at the end of 2022 and into early 2023 will continue.

We expect meaningful growth in Lexington this year.

Led by property.

Where over the last few years, we have prudently tightened limits improved terms and conditions and increased profitability, while driving top line growth.

We also plan to increase investment in our assumed reinsurance business in 2023, particularly through Validus re.

As we have discussed on prior calls over the past few years, we've been highly focused on driving value through a disciplined approach involving strong risk assessments sound portfolio construction, our steadfast commitment to underwriting excellence and prudent capital management.

Over this period of time, the Derisking within Validus re was particularly acute in the global property cat market, where year over year, we reduced participations across the portfolio.

Concurrently purchasing sound retro sessional protections to prudently manage the portfolio and reduce volatility all in line with our cycle management strategy.

As a result.

We were in a strong position to capitalize on attractive opportunities at January one the property market in particular repositioned and became very compelling in terms of risk adjusted rates, along with enhanced structures as well as beneficial terms of conditions.

Rate changes within property cat range between 30, and 100% in the U S as well as in peak zones outside the U S.

Risk adjusted rate increases were approximately 50% in the U S property, and 35% and international property and similarly average margin improvement was approximately 50% year over year across the entire portfolio.

Property Cat ROE for both the U S and international business <unk>.

Increased by greater than 100% year over year.

Additionally, we obtained improved terms and conditions, including favorable movement in attachment points in all property lines.

For casualty lines quota shares remained sound with ceding commissions moving favorably for reinsurers by one to two points, along with terms and conditions remaining in line or improved.

The result of these actions included net premiums written at January one increased over $500 million or 50% year over year.

This increase was driven roughly 30% from U S property.

15% from international property, 45% from casualty placements and the remaining 10% was from specialty including Marine and energy.

The majority of new property limit was deployed to existing clients with a significant level of private terms being achieved on our U S property writings.

Looking ahead.

We will continue our measured approach for other renewals for example, if meaningful market changes continue we will carefully consider our positions at the April one Japan renewals and we will continue to be very cautious with capital deployed at June one in Florida.

Turning to private client group or <unk>. This business remains a strategic priority for us in 2023.

As you know over the last two years, we have undertaken a significant re underwriting effort in this portfolio reduced aggregate exposure transition certain states to the non admitted market and developed strong partnerships with Lloyds and reinsurers to reduce volatility.

On Monday, we announced our intention to launch in partnership with Stone point capital a newly formed MGA that will underwrite on behalf of AIG and eventually other capital providers in the high and ultra high net worth markets.

AIG will transfer core <unk> solutions to the MGA.

Which will offer a single and then broker and client portal a comprehensive set of product offerings, a simplified data warehouse and the underwriting capabilities of AIG.

The MGA will be rebranded as private clients select or PCF and will be led by Kathleen assortment and our current team at PSEG.

We see this new structure as a logical next step in the evolution of PSEG and believe it will create significant value for clients brokers and other stakeholders. Additionally expense discipline will continue to be a priority for AIG.

In addition to savings from AIG 200 that we expect to earn in during 2023, we plan to move $300 million of expenses currently sitting in AIG corporate Joey to corbridge upon deconsolidation.

Separately, we will continue to align our target operating model and further reduce absolute expenses across AIG parent and general insurance to reflect the fact that AIG is becoming one company.

This year, we will also remain focused on completing the operational separation of corbridge from AIG and we are working towards a secondary offering of corbridge common stock by the end of the first quarter subject to market conditions and regulatory approvals.

Our current expectation is that the majority of net proceeds of the secondary offering will be used for AIG common stock repurchases.

And as I stated on our last call. We are revisiting aig's dividend, which has not changed in many years, we expect to say more about this on our first quarter call in May.

With respect to capital management priorities in 2022, we did a significant amount of work to materially improve the capital structures of both AIG incorporate <unk>.

With the reduction in AIG that we achieved our post deconsolidation leverage will be in line with best in class peers.

And with respect to share buybacks, we have $3 8 billion remaining on our existing share repurchase authorization.

Our balanced capital management philosophy will continue to allow for investment in growth opportunities, while returning appropriate levels of capital to shareholders through share buybacks and dividends.

We also remain open to compelling inorganic growth opportunities should they arise.

Before turning the call over to Sarah I would like to pause and say that 2022 was another incredibly important year for AIG.

Our colleagues did an exceptional job, particularly on the corbridge IPO and the continued underwriting and operational improvements that are clearly showing through in our financial results. Our journey to be a top performing company continues and I fully expect 2023 to be another year with significant momentum and progress across the organization.

With that I'll turn the call over to Sabre.

Thank you Peter today, I will review net investment income or additional color on our fourth quarter and full year 2022 results and capital management and also update you on the progress we are making other paths to a 10% plus adjusted return on common equity or our oce.

Turning to net investment income on an API basis fourth quarter net investment income was $3 1 billion down $331 million or 10% compared to <unk> 21.

Similar to trends throughout 2022, the decrease was due to lower alternative investment income principally on private equity investments and lower bond call and tender premiums and mortgage prepayment fees.

For the full year net investment income on an <unk> basis was 11 point of $1 billion and $1 9 billion due to the same trends.

For the quarter and the full year, we achieved higher new money reinvestment rate and rate resets on floating rate securities in <unk> 'twenty, two net investment income on fixed maturities and mortgage and other loans rose $224 million sequentially with 29 basis points of yield improvement, which was ahead of our 10% to <unk>.

15 basis point forecast.

Second quarter of 'twenty, two when we began to bend the curve on investment yields the increase has been 55 basis points.

In <unk> 'twenty two the average new money yield was just over 6% and about 173 basis points of both sales and maturities.

New money rates were roughly 157 basis points higher in general insurance, and 190 basis points higher in life and retirement.

In addition, during the fourth quarter, we repositioned some of the general insurance portfolio to lock in higher yields while maintaining similar credit quality and duration.

This resulted in a modest capital loss of $57 million, but we expect the portfolio to generate higher net investment income in 'twenty three as a result.

Given current market levels, we expect additionally yield uplift of 10 to 15 basis points on the consolidated portfolio and <unk> 23.

Before I head into results for the quarter I want to note that in the fourth quarter. We eliminated the one month reporting lag in general insurance International which had a $100 million positive impact on our GAAP net income for the quarter. This change did not impact <unk> atti, which remain on the same reporting basis as the <unk>.

Prior year, but in 2023 Gi International results will be on a calendar quarter basis, and one month difference in 2022, which will create some slight timing mismatch in quarterly net premiums written comparisons, but with minimal impact for the full year. Please see page 25 of the financial supplement for more details.

Yes.

As Peter noted AIG reported adjusted after tax income of one point or $1 billion or $1 36 per diluted share.

General insurance delivered <unk>, one 2 billion compared to $1 $5 billion in the prior year quarter due to lower investment income, partially offset by a $136 million increase in underwriting income.

Prior year development was $151 million favorable in the fourth quarter up from $44 million of favorable development in <unk> 'twenty one.

Net favorable amortization for the ADC was $41 million, while North America favorable development was $148 million in international was $38 million adverse mostly driven by casualty.

Fourth quarter other operations adjusted pretax loss of $451 million improved $197 million from last year, despite $23 million of additional expenses related to the corporate separation.

Annualized adjusted <unk> was seven 5% in <unk> 22 down from nine 9% in <unk> 'twenty, one principally due to lower alternative investment income.

Turning to life and retirement strong sales momentum continued in the fourth quarter life and retirement <unk> $781 million down from $969 million for Q2, 'twenty, one due to lower investment income and alternatives and other yield enhancements, partially offset by higher base investment income.

And more favorable mortality.

Individual retirement sales were $3 8 billion, a 16% increase over the prior year quarter with fixed annuity sales up 78% and fixed index sales up 34%.

Near record sales for both products.

Group retirement deposits grew 20% driven by higher out of planned fixed annuity sales and large plant acquisitions.

Life insurance business had solid sales with an improving mix of business in the U S and continued growth in the U K.

In institutional markets premiums and deposits were $1 $6 billion, driven by $1 $3 billion in pension risk transfer activity.

New product margins in LNR were attractive and in excess of long term targets supported by higher new money yields including from Blackstone.

After years of spread compression LNR spreads are expected to improve in 2023.

I wanted to make you aware of an update to our <unk> estimate.

In the first quarter of 2023, we will adopt the change in accounting principle for <unk> with the transition date of January one 2021.

Current estimate is that as of September 32022, the adoption with increased shareholders equity between $800 million at $1 $3 billion in Aig's adjusted shareholders equity would increase between $1 2 billion and $1 7 billion.

This increase in the estimate has been predominantly driven by capital market movements during 2021 and 2022.

Turning to full year 2020 to AIG reported adjusted after tax income of $3 6 billion or $4 55 per diluted share compared to $4 4 billion or $5 12 per diluted share in 2021.

These results include much stronger underwriting profitability in Gi offset by lower alternative investment income as previously described.

General insurance API for the full year 2022 was $4 4 billion up 2% from 2021 due to the $1 billion increase in underwriting profitability offset by lower investment income.

<unk> was $2 7 billion down from $3 9 billion in 2021, principally because of lower investment income.

Other operations adjusted pretax loss improved about $400 million in 2022, due to lower general operating expenses and higher income and short term investments.

Full year 2022 included additional expenses from the corporate separation of $51 million.

And in 2023, we expect an incremental cost of $75 million to $100 million in other operations.

Related to the separation.

Adjusted book value per share was <unk> $73 87 at December 31, 2022 up 7% from year end 2021.

Full year adjusted <unk> was six 5%.

From eight 6% in 2021, primarily due to lower alternative investment income, which was down $1 $8 billion from 2021 or about 340 basis points of <unk> compared to 2021.

At year end, our primary insurance subsidiaries remain above target ranges for statutory capital with Gis U S pool estimated in the range of 45 to 495 and LNR estimated in the range of $4 10 to $4 20.

In addition to the strong financial results. We also executed on multiple capital management priorities in 2022 as.

As Peter described we established a separate debt capitalization structure for corbridge and subsequently reduced Aig's holding company debt by $9 8 billion.

This reduction in AIG that will lower Aig's holding company interest expense from about $1 billion in 2021 to roughly $500 million in 2023, excluding interest expense on corbridge issued debt.

In 2022, we also returned over $6 1 billion to shareholders.

With $1 billion of dividends and $5 1 billion of share repurchases, yielding a 10% reduction in shares outstanding.

We ended the year with parent liquidity of $3 7 billion.

Looking ahead, we remain highly committed and laser focused on delivering a 10% plus our oce after the deconsolidation of corbridge.

As Peter and Shane has shared previously achieving this goal is based on sustained and improved underwriting profitability.

Executing a leaner operating model across AIG.

Separation and deconsolidation of Corbridge and continued balanced capital management, including reducing AIG common shares to between 600 650 million shares through repurchases, while targeting debt to total capital leverage.

At the lower end of the 20% to 25% range post deconsolidation.

Progress on each of these will increase our oce, along with additional tailwind from higher reinvestment yields and alternative returns more consistent with long term averages.

As Peter mentioned expense reduction remains an important goal.

In the following years, we expect to achieve $300 million of additional savings from AIG 200, with the majority, earning and through 2023.

$300 million of AIG corporate general operating expense moving to corbridge pundits deconsolidation.

And additional savings as we transition to a leaner operating model as.

As a reminder, every $500 million of expense savings equates to one point of <unk> improvement.

I will now turn the call back over to Peter.

Thank you Michelle we'll take our first question. Please.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

Yes it has.

And you wish to remove yourself from the queue. Please press star one again, please standby, while we compile the Q&A roster.

Our first question comes from Elyse Greenspan with Wells Fargo. Please proceed with your question.

Hi, Thanks. Good morning. My first question is on the path to the double digit ROE target. So the starting point is the six 5% from 22, but I know that that it does include some contribution from LNR and will in the near term. So can you help us with what the starting point would be if you stripped out the <unk>.

Earnings contribution and equity of life and retirement, just trying to get a sense of the early of the ongoing business and how the work in that starting point changes.

Including the life and retirement business.

Thanks Elyse.

I would think.

In terms of how you should think about this and for us to get to the 10% Roe Sabre.

<unk> outlined and detailed as really.

Three major ways in which we will get there one is through the underwriting results.

Other as expense savings the other is sort of the capital rebalance with share repurchases and other capital management. So you should think about that as a three to 350 basis point.

Target in terms of us getting to the double digit <unk> of course net investment income can benefit and thats more of a timing issue.

Never said, even in the prior calls that contribution firm increase NOI NII will be the one that needs to contribute to get us to the 10%, but I think I would think of it in that range for the different components.

Okay and then my second question you guys had taken up your loss trend assumption to six 5% last quarter.

Assuming that can change, but correct me, if I'm wrong and Peter he spoke to pricing of 6%, which would put within pricing below loss trend, but you also did say right that way, it's got better as we ended the year in December So would you expect.

The 6% to go above loss trend in the first quarter.

Yes. Thank you.

First part of lease so we do not change our loss cost assumptions from what we had outlined in the third quarter. So six 5%.

<unk> remains our view.

When you look at the fourth quarter.

Like you said that you know overall there was around 6%, but when you do you have to take a couple of things into consideration. One is fourth quarter is our seasonally lowest size quarter, but if you look at financial lines like financial lines as even throughout the entire year first quarter through fourth so had a little bit more of a contribution to the overall rate.

Index.

In the fourth quarter, our international was very well balanced.

We had strong rate in areas where.

We felt we needed it which is like property excess casualty, we're driving rate as we have been for the last several years and Lexington, the excess and surplus lines.

And then I look at the full year in terms of.

North America.

The excess casualty retail property election at all getting double digit rate increases and so like we have been very focused.

On the rate above loss cost to continue to develop margin I think thats been evidenced through.

The culture that we've developed in terms of underwriting excellence, we are very focused on making sure that we continue that and its terms and conditions and adjustments to how we structure businesses going forward December was much stronger than.

The first part of the quarter and as we looked at January that momentum is continuing.

David maybe just spend a minute on what happened in financial lines and D&O specifically.

Yes.

Yes, Thank you Peter and thank you everybody.

And to Peter's point, we have to be careful around generalizations, because we are actually hitting rate over trend in most of our big businesses, the outliers financial lines and and financial lines. You also have to unpack, a little bit and understand that excess D&O and excess D&O and large public companies is probably.

Driving some of the macro numbers, but it's not driving the behavior underneath so in our financial lines business. We have professional liability. We have cyber we have private company business, we are financial financial institutions in all those businesses are actually getting rate over trend, but sometimes when you aggregate up the.

Excess public company business it's.

Suppresses it and in that case lease it's hard to rationalize I'll be very Frank.

That's a place where if your primary youre still getting rate youre still getting flat, maybe down a little bit but you have you have risk adjusted rate that's helping in the excess business.

It's been very competitive.

It's a different sort of market and and it's actually a market that.

I would say that.

<unk> and companies that are being thoughtful need to actually.

So with whether Thats a place they are going to trade, okay and.

The rates are going down 20%, 30% is probably influencing some of the numbers that you look at on an aggregate basis.

And inside that portfolio.

Things are going to have to be made as to as to how you trade there. Okay. In our case it represents a small amount of the portfolio but.

Congesting that that's actually where the commoditization of the business is going to.

Going to cause a little bit of pain in the 2023 2024 year, okay, but its I do Peter hit it.

We look at rate over trend.

Very granular basis, and I think we're comfortable with what that means to our big businesses and even in financial lines, what it means to our sub products there and I think that's an important part of our story.

Thanks, Dave and don't forget the cumulative rate increases we achieved in D&O over the last three years have been north of 80%. So again, it's a line as Dave says we're laser focused on.

We're not going to chase the market down, but the cumulative rate increases and margin develop hasn't been fully recognized and we're going to look to 2023 with a lot of discipline.

Next question please.

Thank you.

Next question comes from Paul Newsome with Piper Sandler Your line is open.

Good morning.

There's been an enormous amount of conversation.

Obviously did a lot to add.

About.

Excess casualty excess of loss reinsurance.

As a large account commercial writer I assume youre using a lot of facultative as well here.

Curious if the comments you were making extend into not just sort of excess of loss, but also facultative and even quota share.

<unk> been as impacted as some of the other pieces of business and how that would affect.

AIG.

Thanks, Paul we do purchase facultative in certain segments of our business, but we were really referencing.

The core treaties when we look at risk appetite when we.

Thinking through our ability to protect.

Protect the balance sheet, and where we want to structure treaties.

We don't require facultative reinsurance for other segments in order to supplement the core structure. So when I was referencing in my prepared remarks, the treaty structures.

We did an exceptional job the team really focused on modeling changes.

Inflationary changes.

And where we thought capital was going to be less expensive versus more expensive. An example that would be taking big excess of loss cat.

Across the world It gets too expensive for.

Allocation of capital.

And that is something we moved away from so we built more vertical towers in North America and in international than Japan, specifically.

So I think the overall market.

Has responded most of property casualty has started to tighten up I still think that there's ample capacity in and quota shares that may be.

With some tighter terms and conditions and ceding commissions are by and large it was placed a ball.

And yes, facultative I think has become harder to place on property just based on their capital available, but for US we don't heavily rely on facultative to deliver results is really our core treaty structures.

Okay.

We will also talk about the changing conditions in commercial lines, obviously AIG.

Led the market in change in terms and conditions in commercial lines.

The impact pretty much.

There now today AIG and.

Have you seen are you seeing any change in the market as well.

Terms and conditions.

Meaningful.

So I'd say the pricing changes.

I think we've done an exceptional job on the underwriting side with terms and conditions I think the entire team has.

His focus over the last several years as you know.

Not only certainly pricing is an output, but how we structure our.

Our insurance deals how we focus on client needs, but also how we.

Customized terms and conditions to make sure that we have that would be appropriate policies and endorsements.

In the marketplace I don't think it's over.

It's something that's a nuance, but as we look to the property market in 2023.

It's one of the areas, where when you report out right you really have to understand the risk adjusted implications of rate increases for instance, in excess and surplus lines property I expect to see a higher deductibles more wind deductibles tighter terms and conditions, we've seen what used to be all risk, which covered all perils now.

Named barrels and so you can strip out a lot of coverage in terms of when you are placing it whether you are trying to solve for wind or Quaker flood you don't provide all of the barrels and so if you said to me what's one of the big areas that Youll see an improvement in 2023, it will be on the terms and conditions and how we price those.

Those barrels and I think we will offer particularly in excess and surplus lines the appropriate coverage, but we will be restrictive on terms and conditions. If we don't feel we're getting paid for them.

So I don't think it's over.

Thank you.

Thanks, Paul next question. Our next question comes from Erik bass with autonomous.

Please proceed with your questions.

Hi, Thank you I was hoping you could help us think about the base NII trajectory for 2023, we're seeing a nice step up the past couple of quarters and you gave some guidance for the first quarter, but how much of the increase is coming from resets on floating rate assets and how much is the tailwind from higher reinvestment yields and the portfolio changes that youre, making.

That should continue to build throughout the year.

Thanks, Eric.

As you know this has been an active strategy for us, particularly over the back half of 2022 I think the team has done an exceptional job and say, but maybe you can just provide a little bit of insight in terms of some of the NII and the reinvestment rates.

Yes, happy to do that and I would just note we added a new footnote on page 47 of the financial supplement.

That gives you the walk of the yield on fixed maturity securities and loans. So you can see the quarter to quarter improvement in the portfolio yield on that portfolio.

Which basically began to bend the curve in the second quarter for a step up in yield and we also there give you the impact of the other yield enhancements, which year over year was about a $400 million headwind for AIG consolidated NII.

But to go back to your question about the path forward and I'll put alternatives to the side I mean, those are obviously volatile quarter to quarter, but like I said that was 340 basis points.

Of headwind year over year.

2021 was an exceptional year for alternative returns, whereas full year 2022 was about a five 6% yield so more in line with our average assumption.

But to go back.

So in the quarter as I said, the new portfolio yield or the new money rates were just above 6%.

173 basis points over the assets going forward.

And if you look at in the quarter fourth quarter 2002.

Grew about $160 million, just due to the rate resets and about 14 basis points from the pickup in yield on the portfolio now.

Now in 2023, the impact is going to really depend on the path and timing of market rates fed rate hikes changes in credit spreads as well as the movement in the yield curve as you know the GI has got a shorter duration in LNR and right now we've got an inverted curve, so depending on where you're investing and youre going.

You have different impacts on your yield.

So what I would just kind of point you to is for the full year.

We're projecting about $8 billion of reinvestment on the Gi portfolio $20 billion in corbridge and for the first quarter. We are projecting about 10 to 15 basis points of yield uplift just based on where we are for rates.

The market is expecting additional rate increases from the fed I would expect to see more pickup from the floating rate note resets during the course of the year and then like I said really what we pick up in the second or third quarter is going to be a function of how the shape of the yield curve changes.

The point I would just make in total is that we are definitely having a tailwind from higher rates and higher spreads in the market. In addition, during the last several months because of the basically the changes in the spreads.

Where some of the opportunities, where we were able to move up in quality on the bond portfolio investments, while still getting in a pickup in the yield because of the market environment.

No.

At this point in time, I think it's premature to give any sort of actual projection on a dollar basis, but from a yield pick up trend. We're very confident that we'll continue to see that during 2023.

Thanks Deborah.

Okay. Thank you that's helpful. And then secondly, I just was hoping you could help us think about the trajectory for the other operations lost spoke before and after the corporate separation.

Sounds like there should go up in 2023 because of some of the corporate expenses, maybe that's offset a little bit by interest savings, but then you'll get a big step down when you do consolidate core bench in the $300 billion comes out is that the right way to think about it.

Yes, Eric it is.

And other operations think about it in a couple of components I think you've outlined most of them is that upon deconsolidation.

We would have $300 million of there or thereabouts go with core bridge I mean, there could be some stair step up I mean, its hard in 2023 to look at each quarter, because we're building corbridge as a as we've talked about before as a standalone public company.

Those.

Amounts will be.

And each quarter, depending on the progress that we're making solid think about the 300 I think we will have savings in other operations.

Throughout the year separate from that.

1% to $200 million range, and then as we get to the future target operating model.

We've given guidance in the past that we anticipate that we'll get around $500 million not out of all of that will not all come out of other operation will come out of the combination of what is general insurance in the power company today.

But that will take deconsolidation will take us to get to the target operating model, but I think in the short run you should think about core, but just $300 million in that between $100 million to $200 million of other reductions in other ops is how I would think about it in 2023.

Thank you.

Thanks, Eric next question.

Next question comes from Alex Scott with Goldman Sachs. Your line is open.

Hi, Good morning, first one I had is just on net premium written growth in general insurance I mean, we saw it slow in 2022, particularly towards the back end of the year.

Yes, it sounds pretty interesting some of the opportunities you have.

Both in Validus re and Lexington, but I just wanted to get sort of a higher level perspective from you on.

This strategy has been to sort of disclose some of that growth in the back half of this year and how you see that potentially inflect in as we go into 2023.

Thank you for the question.

You have to really look at the full year I believe in terms of showing the progress of what we've done as a company you know first and foremost again I'll mention it again, which is a culture of underwriting excellence when we look at commercial with a 340 basis point improve.

Improvement in the in the fourth quarter in terms of its action year combined ratio ex cat 440 for the year I mean, that's substantial progress we made enormous.

Improvements in profitability and so we have shaped the portfolio the way we like it.

Where again the fourth quarter, not all roads lead to financial lines, but again it was just a disproportionate amount of.

Premium relative to the overall size fourth quarter small we saw real good growth in the businesses that we wanted to grow in.

Which is in the excess and surplus lines global specialties.

As we've been talking about I hope, it's evidenced through what we did at one one which is why we wanted to put it in the prepared remarks, which is.

We kept talking about taking aggregate down where we didn't think we were getting the appropriate risk adjusted returns, but when we thought we felt that the risk adjusted returns are there like on the reinsurance business, we expanded significantly and expect to see that through 2023 can't really predict the market, but I don't believe this is all played through we had a very <unk>.

<unk>, one one, but you have Japan coming up and the hardest part in terms of the reinsurance market and thus than the primary market on peak zone is going to be $4 six one and so we think there's great opportunities in the excess and surplus lines continue to grow again global specialties retail property across the world.

We'll watch international but I don't believe that the treaty increased pricing that happened, which was substantial at one one will play its way through the international business until 2024, because a lot of the deals 60% of it comes up at one one was priced off of prior year treaties and so I think this asthma.

Mentum.

We're incredibly well positioned and we have no aggregate restrictions and where we see risk adjusted returns that are attractive, which we already have we're going to deploy capital that was the whole idea of putting more capital in our subsidiaries and then it goes to other lines of business I mean, you cross sell.

What we do on casualty, how we play in these different markets.

Have such tremendous following as lead experts in underwriting that we believe across the world our platform.

We will be very helpful to our clients and we expect to find really strong areas for growth.

That's really helpful.

Second one I had is more specifically on casualty in excess casualty pricing, we've heard some peers kind of talk about pricing in express need for it to reaccelerate.

Some investors seem to be getting a little more cautious about the potential for continued deceleration. There I felt like your prepared remarks are a little more optimistic I'd just be interested in your perspective on the portfolio at AIG, what youre seeing in the market.

Where you expect things to go there.

We watch it carefully I mean excess casualty, we're still getting very strong rate we have for the last couple of years.

And that didn't stop in the fourth quarter.

My prepared remarks, we're really just focused on I don't think the market that we entered in the fourth quarter as the market that we're in.

There's been a lot of changes over the last 60 days.

And like every other line of business needs to stand on its own and needs to develop margin.

We want to be conservative in our position and making certain that the underwriting terms and conditions are appropriate, but we're watching it carefully I haven't seen a substantial downturn in terms of pricing. It's been right in the sort of same range for as I said, the last six quarters and it's something that we're going to watch very carefully in 2000.

'twenty three.

Okay.

We greatly appreciate the engagement and all the questions and appreciate the interest and so I just wish everybody a great day and thank you for being here.

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation you may now disconnect.

The conference will begin shortly.

As in lower Johan during Q&A, you can dial one one.

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Good day, and look to Aig's fourth quarter 2022 financial results Conference call. This conference is being recorded now at this time I would like to teleconference over to Quentin Mcmillan. Please go ahead.

<unk> filings with the SEC, including our annual report on Form 10-K, and our 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 applicable securities laws AIG is under no obligation to update any forward looking statements if circumstances or management's estimates are opinions should change.

Additionally, today's remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release financial supplement and earnings presentation, all of which are available on our website at www Dot AIG Dot Com. Finally, today's remarks, we'll discuss the results of Aig's life and retirement segment and other operations on the same basis as pre.

Near quarters, which is how we expect to continue to report until the deconsolidation of <unk> financial incorporated.

Aig's segments in U S GAAP financial results as well as Aig's key financial metrics with respect their to differ from those reported by corporate financial corporate financial will host its own earnings call Tomorrow on Friday February 17th and will provide additional details on its results with that I would 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 fourth quarter and full year 2022 results.

Following my remarks safer will provide more detail on certain topics, including life retirements results on our path to a 10% or greater <unk> and then we will take questions.

Kevin Hogan and David Mcelroy will join us for the Q&A portion of the call today I will cover four topics first I will provide an overview of our fourth quarter financial results.

Second I will review highlights from the full year, including some of our major accomplishments, which were remarkable given the very challenging conditions, we faced throughout 2022, and the equity markets and the insurance industry.

<unk> to say this one one renewal season was the most challenge that many including myself have seen in our careers.

And fourth I will outline our 2023 priorities and outlook regarding capital management.

Before turning to our results.

Like to welcome Sabre to the call. We are fortunate to have her in the interim CFO role, while Shane is on medical leave regarding Shane I am personally deeply appreciative of the tremendous outreach from many of you. The number of people are saying good wishes for a speedy recovery is incredibly meaningful to me and our management.

Team and particularly to Shane and his family, we look forward to welcome him back to AIG.

Now, let me begin with a brief overview of Aig's fourth quarter results.

Adjusted after tax income in the fourth quarter was $1 billion and $1 36.

Per diluted common share.

We repurchased approximately $780 million of AIG common stock and redeemed $1 $8 billion of debt.

AIG paid $243 million in dividends in the fourth quarter and corbridge paid two dividends totaling approximately $300 million following its IPO in September of 2022.

Notably underwriting income in the fourth quarter increased 27% year over year to $635 million.

Global commercial drove the year over year increase achieving an accident year combined ratio ex cats of 84, 1%, a 380 basis point improvement and a 69% increase in underwriting income.

Global personal reported an accident year combined ratio ex cats of 104%, a 610 basis point increase from the prior year quarter as we continued to reposition this portfolio.

Moving to global commercial on an FX adjusted basis, North America commercial net premiums written increased 3% and international increased 2%.

Global commercial had strong renewal retention and its in force portfolio and new business continued to be strong.

Turning to rate momentum continued in North America commercial with overall rate increases in the quarter of 3%, 7%. If you exclude financial lines and 9%. If you also exclude workers' compensation.

These rate increases were driven by retail property at 15% Lexington at 12% and excess casualty at 9% and the exposure increase in the North America portfolio was 3%.

International commercial rate increases were 4% driven by Asia Pacific at 9% and EMEA at 7% and the exposure increase in the international portfolio was around 2%.

Pricing, which includes rate plus exposure was up 6% in both North America and international.

While we experienced downward pressure on rate in certain lines early in the fourth quarter. We saw a re acceleration of price increases towards the end of the quarter. For example, retail property was up 15% in the fourth quarter with rate improvement of 24% in December when market impacts from increased catastrophes start to be fair.

Okay.

We saw similar upward movement at Lexington, and particularly within the property portfolio with December being the strongest rate increases in the fourth quarter.

Overall, we continue to earn rate above loss cost trends, which contributed to positive margin expansion.

Later in my remarks, I will discuss our announcement on Monday relating to PSEG and our partnership with stone point capital to create a new managing general agency or MGA.

In international personal net premiums written slightly increased by 1% on an FX adjusted basis due to a rebound in travel and growth in A&H.

Now turning to the full year, we made tremendous progress throughout 2022 on a number of key priorities.

Could not be more pleased with our team's ability to execute on multiple complex strategic objectives across AIG at once.

Our most significant and impactful accomplishment was completing the IPO of corbridge in September of 2022, despite the very challenging equity market conditions, we had to navigate.

Notably Corbridge was last year's largest IPO in the U S and the largest financial services IPO since 2020.

Turning to full year consolidated financial results for AIG adjusted after tax income in 2022 reached $3 6 billion.

It was $4 55 per diluted common share.

We returned $6 1 billion to shareholders through $5 1 billion of AIG common stock repurchases and $1 billion of dividends.

We finished 2022 with 734 million shares outstanding a 10% decrease since the end of 2021.

And we executed on a number of capital management actions to establish the Standalone corporate capital structure, while reducing AIG debt by roughly $10 billion.

Consolidated financial debt outstanding was approximately $21 billion at year end with $11 8 billion that AIG and $9 $4 billion at corbridge.

Now let me cover full year 2022 results for general insurance.

As I've noted on prior calls and it's worth repeating since 2018, we completely overhauled our underwriting standards and overlay the standards with a comprehensive reinsurance program that can adapt to market conditions and to our portfolio as it continues to change and improve.

For example, global commercial now represents 74% of our net premiums written up from 57% in 2018, and Lexington is now 17% of our North America commercial business up from 12% in 2018.

If you exclude Validus re Lexington is now 23% of North America commercial.

As a result of this work our current portfolio is very well positioned for 2023.

I will discuss in more detail later when.

And when I review January one reinsurance renewals, how market dynamics have shifted and how AIG should benefit as we look to capitalize on attractive opportunities for better risk adjusted returns.

Now let me highlight a few of the key businesses in general insurance that contributed to our performance in 2022.

Lexington, our market, leading excess and surplus lines business at 18% net premiums written growth in 2022 up over 50% since we transitioned this business to focus on the wholesale market.

This business also increased underwriting profitability, excluding cats by 60% and it achieved a sub 80% accident year combined ratio ex cats for 2022.

Gladfelter continued its terrific performance growing net premiums written by 14%.

Increasing underwriting income and achieving an 85% accident year combined ratio ex cats.

The acquisition of Glatfelter allowed us to significantly elevate the quality of our programs business.

Global specialty which includes our global Marine energy and aviation businesses grew net premiums written by over 15% on an FX adjusted basis.

We see great opportunities for these businesses going forward.

And they are strong anchors for AIG that we expect will contribute to profitable growth in 2023.

Our global personal business performed well considering some of the post pandemic headwinds we saw in the first half of 2022, and our strategic repositioning of the business.

In 2022.

Turning to full year net premiums written general insurance grew 4% on an FX adjusted basis, driven by 6% growth in global commercial.

North America grew 7% and international commercial grew 6%.

We had strong renewal retention in our in force portfolio with North America, improving by 300 basis points to 86% and in international achieving 86% for the full year.

And as a reminder, we calculate renewal retention prior to the impact of rate and exposure changes.

For full year saw a 180 basis point improvement in the accident year loss ratio ex cat and a 50 basis point improvement in the expense ratio.

Global commercial achieved an impressive accident year combined ratio ex cats of 84, 5% an improvement of 460 basis points year over year.

The loss ratio was the biggest contributor with a 330 basis point improvement in the combined ratio, including cats and <unk> of 89, 6% represented a 920 basis point improvement year over year.

The accident year combined ratio ex cats, and global personal deteriorated 430 basis points to 99, 2% for the reasons I've outlined before.

Now, let me turn to reinsurance renewals at January one of this year.

As I stated on our last earnings call. We knew this renewal season will be very challenging and lead to fundamental changes in the market that would impact one one renewals.

The market was faced with a combination of factors. The added further pressure to dynamics that we're already creating considerable stress.

We had top global macroeconomic trends.

We had geopolitical uncertainty.

We had short term pressure on the asset side of the balance sheet as a consequence of rising interest rates and inflation and currency fluctuation we.

We had additional natural catastrophe losses late in the fourth quarter, and increasing frequency and severity of secondary perils continued.

In 2022 ended with over $130 billion of insured natural catastrophe losses.

<unk> 2022, the fifth costliest year on record for insurers with five out of the last six years, having exceeded $100 billion.

Unprecedented levels of natural catastrophes on a global scale massively impacted the reinsurance market and a couple of ways.

<unk> deterioration.

And over the last five years secondary perils contributed more than 50% to ultimate loss when compared to primary perils.

These market dynamics also impacted the supply of reinsurance and retro sessional capacity and the cost of capital increase for the industry, which impacted almost all lines of business and territories, regardless of loss experience on top of all of this very little new capital entered the market.

Available capital is estimated to have decreased approximately 20% year over year.

Now, let me outline what happened in the property cat and retro markets in particular due to the high level of cat losses in 2022, which were further exacerbated by events in the fourth quarter.

50% of global property cat limits, which we estimate to be $425 billion.

Renew at January one approximately 70% of global retro limits estimated at $60 billion.

Incept at January one.

Reinsurers heavily rely on peak peril retro protection face greater pressure as a result, whereas larger more diversified reinsurers were better able to manage retro capacity constraints.

As a result, our majority of programs placed on January one saw insurance companies forced increased retentions.

Despite these market challenges AIG navigated this complex and intense renewal season extremely well.

We knew we were in a strong position heading into January one given the repositioning and the improved quality of our global portfolio.

With our considerable efforts to reduce our gross portfolio peak exposures.

As we expected this allowed us to capitalize on many attractive opportunities and this proved to be a competitive advantage as we had an exceptionally successful renewal season.

It's also worth noting that aig's reinsurance purchasing is by design more heavily weighted to January one then the wider market.

The benefits of this are twofold.

Concentrating the bulk of our purchasing a January one allows AIG to maximize the outcome across all of our reinsurance placements.

And we have clear line of sight on our reinsurance cost for the full year, which is particularly valuable in a market, which we believe will continue to be incredibly challenging.

Some of the highlights of our January placements include the following.

With respect to property catastrophe placements, we obtained more limit than we purchased in 2022.

Specifically, we separately made appropriate changes to our North America property cat treaties to reflect our improving portfolio with retention of our commercial cap portfolio attaching a $500 million and Lexington in our programs business, having an attachment point of $300 million.

Our property cat per current structures largely stayed the same for international and we believe their market, leading with Japan's retention staying flat at $200 million and the rest of world attaching at a $125 million.

Many factors improved our overall property cat reinsurance program with highlights being.

We were able to obtain approximately 6 billion of limit, including increasing our per occurrence excess of loss placements.

We maintained low attachment points on a model basis.

We received support for a 500 million aggregate placement.

And our overall spend for AIG increased less than 10% on an absolute and risk adjusted basis versus 2022.

This allowed us to reduce the total limit purchase for the PCB specific cap program, which partially offset increased pricing pressure due to hurricane in.

Overall casualty renewals, both excess of loss in our quota share placements renewed close to expiring terms on a risk adjusted basis with no impact on ceding commissions.

Our reinsurance partners maintain their support for AIG with consistent capacity deployment and reinsurance terms and clear recognition of the quality of our portfolio.

We appreciate the ongoing support we have received from our reinsurance partners.

As we look ahead to 2023, the world faces, many uncertainties and uncertain times, our role as a market leading global insurance company is even more important.

By 2022, we.

We have set out ambitious strategic and operational priorities for 2023.

We will continue to improve and invest in lines of business in general insurance, where we see significant growth potential, notably Lexington in global specialty.

A highlight Lexington, because it is presented and we will continue to present tremendous growth and profitability opportunities for us.

And early indications are that the rate momentum we saw in this business at the end of 2022 and into early 2023 will continue.

We expect meaningful growth in Lexington this year.

Led by property.

Where over the last few years, we have prudently tightened limits improved terms and conditions and increased profitability, while driving top line growth.

We also plan to increase investment in our assumed reinsurance business in 2023, particularly through Validus re.

Over this period of time, the Derisking within Validus re was particularly acute in the global property cat market, where year over year, we reduced participations across the portfolio.

Concurrently purchasing sound retro sessional protections to prudently manage the portfolio and reduce volatility all in line with our cycle management strategy.

As a result.

We were in a strong position to capitalize on attractive opportunities at January one the property market in particular, reposition and became very compelling in terms of risk adjusted rates, along with enhanced structures as well as beneficial terms of conditions.

Rate changes within property cat range between 30, and 100% in the U S as well as in peak zones outside the U S.

Property Cat ROE for both the U S and international business <unk>.

The increased by greater than 100% year over year. Additionally.

Additionally, we obtained improved terms and conditions, including favorable movement in attachment points in all property lines for.

For casualty lines quota shares remained sound with ceding commissions moving favorably for reinsurers by one to two points, along with terms and conditions remaining in line or improved.

The result of these actions included net premiums written at January one increased over $500 million or 50% year over year.

This increase was driven roughly 30% from U S property <unk>.

15% from international property, 45% from casualty placements and the remaining 10% was from specialty including Marine and energy.

The majority of new property limit was deployed to existing clients with a significant level of private terms being achieved on our U S property writings.

Looking ahead, we will continue our measured approach for other renewals for example, if meaningful market changes continue we will carefully consider our positions at the April one Japan renewals and we will continue to be very cautious with capital deployed at June one in Florida.

Turning to private client group or <unk>. This business remains a strategic priority for us in 2023.

As you know over the last two years, we have undertaken a significant re underwriting effort in this portfolio reduced aggregate exposure transitioned certain states to the non admitted market and developed strong partnerships with Lloyds and reinsurers to reduce volatility.

AIG will transfer core <unk> solutions to the MGA.

Which will offer a single and then broker and client portal a comprehensive set of product offerings, a simplified data warehouse and the underwriting capabilities of AIG.

The MGA will be rebranded as private clients select or PCF and will be led by Kathleen assortment and our current team at PSEG.

In addition to savings from AIG 200 that we expect to earn in during 2023, we plan to move $300 million of expenses currently sitting in AIG corporate Joey to corbridge upon deconsolidation.

Separately, we will continue to align our target operating model and further reduce absolute expenses across AIG parent and general insurance to reflect the fact that AIG is becoming one company.

Our current expectation is that the majority of net proceeds of the secondary offering will be used for AIG common stock repurchases.

And as I stated on our last call. We are revisiting aig's dividend, which has not changed in many years, we expect to say more about this on our first quarter call in May.

With respect to capital management priorities in 2022, we did a significant amount of work to materially improve the capital structures of both AIG and corbridge.

With the reduction in AIG that we achieved our post deconsolidation leverage will be in line with best in class peers.

And with respect to share buybacks, we have $3 8 billion remaining on our existing share repurchase authorization.

We also remain open to compelling inorganic growth opportunities should they arise.

Before turning the call over to Sarah I would like to pause and say that 2022 was another incredibly important year for AIG. Our colleagues did an exceptional job, particularly on the corbridge IPO and the continued underwriting and operational improvements that are clearly showing through in our financial results our journey to be a top.

Arming company continues and I fully expect 2023 to be another year with significant momentum and progress across the organization with that I'll turn the call over to sabre.

Thank you Peter today, I will review net investment income additional color on our fourth quarter and full year 2022 results and capital management and also update you on the progress we are making on our path to a 10% plus adjusted return on common equity or our oce.

Turning to net investment income on an API basis fourth quarter net investment income was $3 1 billion down $331 million or 10% compared to <unk> 21.

For the full year net investment income on an API basis was 11 point of $1 billion down $1 9 billion due to the same trends.

10 to 15 basis point forecast.

Second quarter of 'twenty, two when we began to bend the curve on investment yields the increase has been 55 basis points.

In <unk> 'twenty two the average new money yield was just over 6% and about 173 basis points of both sales and maturities.

New money rates were roughly 157 basis points higher in general insurance, and 190 basis points higher in life and retirement.

In addition, during the fourth quarter, we repositioned some of the general insurance portfolio to lock in higher yields while maintaining similar credit quality and duration.

This resulted in a modest capital loss of $57 million, but we expect the portfolio to generate higher net investment income in 'twenty three as a result.

Given current market levels, we expect additional yield uplift of 10 to 15 basis points on the consolidated portfolio and <unk> 23.

Yes.

As Peter noted AIG reported adjusted after tax income of one point to $1 billion or $1 36 per diluted share.

General insurance delivered <unk> of $1 2 billion compared to $1 5 billion in the prior year quarter due to lower investment income, partially offset by a $136 million increase in underwriting income.

Prior year development was $151 million favorable in the fourth quarter up from $44 million of favorable development in <unk> 'twenty one.

Net favorable amortization for the ADC was $41 million, while North America favorable development was $148 million and.

International was $38 million adverse mostly driven by casualty.

Fourth quarter other operations adjusted pre tax loss of $451 million improved $197 million from last year, despite $23 million of additional expenses related to the corporate separation.

Annualized adjusted <unk> was seven 5% in <unk> 22 down from nine 9% in <unk> 'twenty, one principally due to lower alternative investment income.

And more favorable mortality.

Individual retirement sales were $3 8 billion, a 16% increase over the prior year quarter with fixed annuity sales up 78% and fixed index sales up 34%.

Near record sales for both products.

Group retirement deposits grew 20% driven by higher out of planned fixed annuity sales and large plant acquisitions the.

The life insurance business had solid sales with an improving mix of business in the U S and continued growth in the U K.

In institutional markets premiums and deposits were $1 $6 billion, driven by $1 $3 billion in pension risk transfer activity.

New product margins in LNR were attractive and in excess of long term targets supported by higher new money yields including from Blackstone.

After years of spread compression LNR spreads are expected to improve in 2023.

I wanted to make you aware of an update to our <unk> estimate in.

In the first quarter of 2023, we will adopt the change in accounting principle for <unk> with the transition date of January one 2021. Our current estimate is that as of September 32022, the adoption with increased shareholders equity between $800 million at $1 3 billion.

And Aig's adjusted shareholders equity would increase between $1 2 billion and $1 7 billion.

This increase in the estimate has been predominantly driven by capital market movements during 2021 and 2022.

Turning to full year 2022.

AIG reported adjusted after tax income of $3 6 billion or $4 55 per diluted share compared to $4 4 billion or $5 12 per diluted share in 2021.

These results include much stronger underwriting profitability in Gi offset by lower alternative investment income as previously described.

General insurance Atti for the full year 2022 was $4 $4 billion.

Up 2% from 2021 due to the $1 billion increase in underwriting profitability offset by lower investment income.

<unk> was $2 7 billion down from $3 9 billion in 2021, principally because of lower investment income.

Other operations adjusted pretax loss improved about $400 million in 2022, due to lower general operating expenses and higher income and short term investments.

Full year 2022 included additional expenses from the corporate separation of $51 million.

And in 2023, we expect an incremental cost of $75 million to $100 million in other operations.

<unk> related to the separation.

Adjusted book value per share was $73 87 at December 31, 2022.

Up 7% from year end 2021.

Full year adjusted <unk> was six 5% down from eight 6% in 2021, primarily due to lower alternative investment income, which was down $1 $8 billion from 2021 or about 340 basis points of <unk> compared to 2021.

In addition to the strong financial results. We also executed on multiple capital management priorities in 2022.

As Peter described we established a separate debt capitalization structure for corbridge and subsequently reduced aig's holding company debt by $9 $8 billion.

This reduction in AIG that will lower Aig's holding company interest expense from about $1 billion in 2021 to roughly $500 million in 2023, excluding interest expense on corbridge issue debt.

In 2022, we also returned over $6 1 billion to shareholders with $1 billion of dividends and $5 1 billion of share repurchases, yielding a 10% reduction in shares outstanding.

We ended the year with parent liquidity of $3 7 billion.

Looking ahead, we remain highly committed and laser focused on delivering a 10% plus our oce after the deconsolidation of corbridge.

As Peter and Shane who shared previously achieving this goal is based on sustained and improved underwriting profitability.

Executing a leaner operating model across AIG.

At the lower end of the $20 to 25% range post deconsolidation.

Progress on each of these will increase our oce, along with additional tailwind from higher reinvestment yields and alternative returns more consistent with long term averages.

As Peter mentioned expense reduction remains an important goal in.

In the following years, we expect to achieve $300 million of additional savings from AIG 200, with the majority, earning and through 2023.

$300 million of AIG corporate general operating expense moving to corbridge pundit deconsolidation.

And additional savings as we transition to a leaner operating model as.

As a reminder, every $500 million of expense savings equates to one point of <unk> improvement.

I will now turn the call back over to Peter.

Thank you Michelle we'll take our first question. Please.

Thank you as a reminder to ask a question you will need to press star one on your telephone is your question has been answered or you wish to remove yourself from the queue. Please press star one again, please standby, while we compile the Q&A roster.

Our first question comes from Elyse Greenspan with Wells Fargo. Please proceed with your question.

Earnings contribution and equity of life and retirement, just trying to get a sense of the early of the ongoing business and how the work in that starting point changes.

Including the life and retirement business.

Thanks Elyse.

I would think.

In terms of how you should think about this and for us to get to the 10% Roe.

<unk> outlined in detail there is really.

Three major ways in which we will get there one is through the underwriting results.

There is expense savings and the other is sort of the capital rebalance with share repurchases and other capital management. So you should think about that as a three to 350 basis point.

Target in terms of us getting to the double digit <unk> of course net investment income can benefit and thats more of a timing issue. We've never said even in the prior calls that contribution firm increase NOI NII will be the one that needs to contribute to get us to the 10%, but I think I would think of it in there.

That range for the different components.

Okay and then my second question you guys had taken up your loss trend assumption to six 5% last quarter.

I'm, assuming that didn't change, but correct me, if I'm wrong and Peter you spoke to pricing of 6%, which would put within pricing below loss trend, but you also did say right that weights that better as we ended the year in December So would you expect.

The 6% to go above loss trend in the first quarter.

Yes. Thank you.

First part of lease so we do not change our loss cost assumptions from what we had outlined in the third quarter saw six 5%.

<unk> remains our view.

When you look at the fourth quarter.

Like you said that overall, there was around 6%, but when you do have to take a couple of things into consideration. One is fourth quarter is our seasonally lowest size quarter, but if you look at financial lines like financial lines as even throughout the entire year first quarter through fourth so had a little bit more of a contribution to the overall rate.

Index.

In the fourth quarter, our international was very well balanced.

We had strong rate in areas where.

We felt we needed it which is like property excess casualty, we're driving rate as we have been for the last several years and Lexington in the excess and surplus lines.

And then I look at the full year in terms of.

North America.

Excess casualty retail property election at all getting double digit rate increases and so like we have been very focused.

On the rate above loss cost to continue to develop margin I think thats been evidenced through.

The first part of the quarter and as we look to January that momentum is continuing.

David maybe just spend a minute on what happened in financial lines and D&O specifically.

Yes.

Yes, Thank you Peter and thank you everybody.

Driving some of the macro numbers, but it's not driving the behavior underneath so in our financial lines business. We have professional liability. We have cyber we are private company business, we are financial financial institutions and all of those businesses are actually getting rate over trend, but sometimes when you aggregate up the.

Excess public company business it's.

Suppresses it and in that case lease it's hard to rationalize I'll be very Frank.

Yes, that's a place where if your primary youre still getting rate youre still getting flat, maybe down a little bit but you have you have risk adjusted rate that's helping in the excess business.

It's been very competitive.

It's a different sort of market and and it's actually a market that.

I would say that.

Michael mentioned and companies that are are being thoughtful need to actually wrestle with whether thats a place they're going to trade.

And the rates are going down 20%, 30% is probably influencing some of the numbers that you look at on an aggregate basis and inside that portfolio decisions are going to have to be made as to as to how you trade there. Okay. In our case it represents a small amount of the portfolio, but im.

Congesting Thats actually where the commoditization of the business is going to is going to cause a little bit of pain in the 2023 2024 year, okay, but its I do Peter hit it.

We look at rate over trend on a very granular basis, and I think we're comfortable with what that means to our big businesses and even in financial lines, what it means to our sub products there and I think that's an important part of our story.

Thanks, Dave and don't forget the cumulative rate increases we achieved in D&O over the last three years have been north of 80%. So again, it's a line as Dave says we're laser focused on.

We're not going to chase the market down, but the cumulative rate increases and margin develop hasn't been fully recognized and we're going to look to 2023 with a lot of discipline.

Next question please.

Thank you.

Next question comes from Paul Newsome with Piper Sandler Your line is open.

Good morning.

There's been an enormous amount of conversation.

Obviously did a lot to attitude about.

Excess casualty excess of loss.

Reinsurance.

As a large account commercial writer I assume youre using a lot of facultative as well and I was just curious if.

The comments you were making extend into not just sort of excess of loss, but also facultative and even for this year as being as impacted as some of the other pieces of business and how that would affect.

AIG.

Thanks, Paul we do purchase a facultative in certain segments of our business, but we were really referencing.

Core treaties and when we look at risk appetite when we.

Thinking through our ability to protect.

Protect the balance sheet, and where we want to structure treaties.

We don't require facultative reinsurance for other segments in order to supplement the core structure. So when I was referencing in my prepared remarks, the treaty structures.

We did an exceptional job the team really focused on modeling changes.

Inflationary changes.

And where we thought capital was going to be less expensive versus more expensive. An example that would be taking big excess of loss cat.

Across the world It gets too expensive for.

Allocation of capital.

And that is something we moved away from so we built more vertical towers in North America and in international than Japan, specifically.

So I think the overall market.

Has responded most of property casualty has started to tighten up I still think that there's ample capacity in and quota shares that may be.

Some tighter terms and conditions and ceding commissions are by and large it was place a ball.

Okay.

You also talk about the changing conditions in commercial lines, obviously AIG.

Led the market in changing the terms and conditions in commercial lines.

The impact pretty much.

There now today at AIG and have you seen are you seeing any change in the market as well for terms and conditions.

Meaningful.

So pricing changed.

I think we've done an exceptional job on the underwriting side with terms and conditions I think the entire team has.

His focus over the last several years as you know.

Not only certainly pricing is an output, but how we structure our.

Our insurance deals how we focus on client needs, but also how we.

Customized terms and conditions to make sure that we have that would be appropriate policies and endorsements.

In the marketplace I don't think it's over.

It's something that's a nuance, but as we look to the property market in 2023.

Named barrels and so you can strip out a lot of coverage in terms of when you are placing it whether you are trying to solve for wind or Quaker flood you don't provide all of the apparel and so if you said to me what's one of the big areas that Youll see an improvement in 2023, it will be on the terms and conditions and how we price those.

Those barrels and I think we will offer particularly in excess and surplus lines the appropriate coverage, but we will be restrictive on terms of conditions. If we don't feel we're getting paid for them.

So I don't think it's over.

Thank you.

Thanks, Paul next question. Our next question comes from Erik bass with autonomous.

Please proceed with your question.

That should continue to build throughout the year.

Thanks, Eric.

As you know this has been an active strategy for us, particularly over the back half of 2022 I think the team has done an exceptional job and say, but maybe you could just provide a little bit of insight in terms of some of the NII and the reinvestment rates.

Yes, happy to do that and I would just note we added a new footnote on page 47 of the financial supplement.

That gives you the walk of the yield on our fixed maturity securities and loans. So you can see the quarter to quarter improvement in the portfolio yield on that portfolio.

But to go back to your question about the path forward and I'll put alternatives to the side I mean, those are obviously volatile quarter to quarter, but like I said that was 340 basis points.

Of headwind year over year.

2021 was an exceptional year for alternative returns, whereas full year 2022 was about a five 6% yield so more in line with.

Our average assumption.

But to go back.

So in the quarter as I said, new portfolio yield or the new money rates were just above 6%.

173 basis points over the assets going forward.

And if you look at in the quarter fourth quarter 2002.

Grew about $160 million, just due to the rate resets and about 14 basis points from the pickup in yield on the portfolio now.

You have different impacts on your your yield.

So what I would just kind of point you to is for the full year.

Where some of the opportunities, where we were able to move up in quality on the bond portfolio investments, while still getting in a pickup in the yield because of the market environment.

No.

Thanks Deborah.

Okay. Thank you that's helpful. And then secondly, I just was hoping you could help us think about the trajectory for the other operations lost spoke before and after the corporate separation.

Sounds like there should go up in 2023 because of some of the corporate <unk> expenses, maybe that's offset a little bit by interest savings, but then you'll get a big step down when you do consolidate core bench in the $300 billion comes out is that the right way to think about it.

Yes. It is.

And other operations think about it in a couple of components I think you've outlined most of them is that upon deconsolidation.

We would have $300 million of there or thereabouts go with core bridge I mean, there could be some stair step up I mean, its hard in 2023 to look at each quarter. Because we are building corbridge as a as we've talked about before as a standalone public company.

Those.

Amounts will be.

And each quarter, depending on the progress that we're making solid think about the 300 I think we will have savings in other operations.

Throughout the year separate from that.

1% to $200 million range, and then as we get to the future target operating model.

We've given guidance in the past that we anticipate that we'll get around $500 million not out of all of that will not all come out of other operational come out of the combination of what is general insurance in the power company today.

But that will take deconsolidation will take us to get to the target operating model, but I think in the short run you should think about corbridge is $300 million and that between $100 million to $200 million of other reductions on other ops is is how I would think about it in 2023.

Thank you.

Thanks, Eric next question.

Next question comes from Alex Scott with Goldman Sachs. Your line is open.

Hi, Good morning, first one I had is just on net premium written growth in general insurance I mean, we saw it slow in 2022, particularly towards the back end of the year.

Yes, it sounds pretty interesting some of the opportunities you have both.

Both in Validus re and Lexington, but I just wanted to get sort of a higher level perspective from you on.

This strategy has been to sort of disclose some of that premium growth in the back half of this year and how you see that potentially inflect aim as we go into 2023.

Thank you for the question.

Improvement in the in the fourth quarter in terms of its action year combined ratio ex cat 440 for the year I mean, that's substantial progress we made enormous.

Improvements.

And profitability and so we have shaped the portfolio the way we like it.

Where again the fourth quarter, not all roads lead to financial lines, but again it was just a disproportionate amount of.

Premium relative to the overall size fourth quarter small we saw real good growth in the businesses that we wanted to grow in which is in the excess and surplus lines global specialties.

As we've been talking about I hope, it's evidenced through what we did at one one which is why we wanted to put it in the prepared remarks, which is.

We'll watch international but I don't believe that.

<unk> increased pricing that happened, which was substantial at one one will play its way through the international business until 2024, because a lot of the deals 60% of it comes up at one one.

Oz priced off of prior year treaties and so I think this has momentum.

We are incredibly well positioned and we have no aggregate restrictions and where we see risk adjusted returns that are attractive, which we already have we're going to deploy capital that was the whole idea of putting more capital in the subsidiaries and then it goes to other lines of business I mean, you cross sell what we do on casualty how we play in these different markets.

Have such tremendous following as lead experts in underwriting that we believe across the world. Our platform will be very helpful to our clients and we expect to find really strong areas for growth.

That's really helpful.

Second one I had is more specifically on casualty in excess casualty pricing, we've heard some peers kind of talk about pricing in express need for it to reaccelerate.

Where you expect things to go there.

We watch it carefully I mean excess casualty, we're still getting very strong rate we have for the last couple of years.

And that didn't stop in the fourth quarter.

My prepared remarks, we're really just focused on I don't think the market that we entered in the fourth quarter is a market that we're in.

There's been a lot of changes over the last 60 days.

And like every other line of business many to stand on its own and needs to develop margin.

'twenty three.

Okay.

We greatly appreciate the engagement and all the questions and appreciate the interest and so I just wish everybody a great day and thank you for being here.

Ladies and gentlemen, this concludes the conference for today. Thank you for your participation you may now disconnect.

Q4 2022 American International Group Inc Earnings Call

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