Q1 American International Group Inc Earnings Call
Good morning, and thank you for joining us to review, our first quarter financial results.
Following my remarks, Sabre will provide more financial detail on the quarter and then we will take questions, Kevin Hogan and David Mcelroy will be available for the Q&A portion of the call.
As you saw in our press release, we reported an excellent start to the year.
We continue to make meaningful progress across AIG and achieve important milestones even in the face of ongoing complexity in the insurance industry.
Volatile market conditions and general economic uncertainty.
We continue to diligently execute on our strategic and operational priorities, which drove very strong financial results in the first quarter and our positioning AIG for long term value creation.
Here are some highlights from the first quarter.
Adjusted after tax income was $1 $2 billion or $1 63 per diluted common share representing a 9% increase year over year.
Net investment income on a consolidated basis was $3 $1 billion.
In 2022.
We began to take proactive steps to improve the credit quality construction and return characteristics of our investment portfolio as well as to reduce volatility.
We saw the benefits of these actions in the first quarter and expect that to continue throughout the year.
Sarah will provide additional detail on net investment income in her remarks.
Net premiums written and general insurance grew 10% on a constant dollar basis and adjusted for the international lag elimination that we discussed on our last call.
This growth was driven by our commercial business.
Underwriting income was approximately $500 million, a 13% increase year over year, which is aig's strongest first quarter underwriting results.
The accident year combined ratio, excluding catastrophes was 88, 7%, an 80 basis point improvement from prior year.
Life and retirement reported very good results with premiums and deposits of $10 4 billion in the first quarter, a 44% increase year over year supported by record sales in fixed annuity and fixed index annuity products.
Net flows into the general account from individual retirement were approximately $1 3 billion.
Corbridge and Blackstone have made substantial progress advancing their strategic partnership which began in late 2021.
Since that time Blackstone has invested approximately $11 billion on behalf of corbridge with an average gross yield of six 5% and an average credit rating of AA.
This partnership has allowed corbridge to expand in certain asset classes, where.
Where we had limited to no access in the past, which has been very beneficial for the business and is helping to support growth, particularly in fixed.
Annuity products.
We returned approximately $840 million to shareholders in the first quarter through $600 million of common stock repurchases and $240 million of dividends.
And we ended the first quarter with strong parent liquidity of $3 9 billion.
Overall, I'm very pleased with what we accomplished in the first quarter. The strong momentum we had coming into 2023 continues.
As we announced last night.
The AIG board approved the first meaningful increase to Aig's common stock quarterly dividend in many years.
Starting in the second quarter. This dividend will be 36 per share an increase of 12, 5%.
This is another significant milestone for AIG and reflects our commitment to a disciplined balanced capital management strategy and our confidence in the future earnings power of AIG.
Corbridge is also achieving important milestones.
Since its IPO in September of last year, Corbridge has paid three dividends to public shareholders totaling approximately $450 million.
And yesterday, the Corbridge board authorized a $1 billion share repurchase program.
During the first quarter, we were prepared to launch a secondary offering of corbridge common stock, but chose not to proceed when equity markets became volatile due to issues in the financial sector.
We continue to be prepared and discipline in terms of executing a secondary offering which remains our base case for selling down our ownership in corbridge subject to market conditions and regulatory approvals.
We remain committed to reducing our ownership interest in corbridge and we'll explore other options that are aligned with the best interests of shareholders.
During the remainder of my remarks. This morning, I'll provide more information on the following five topics.
First I will review the first quarter results for general insurance sector.
Second I will give a high level overview of the results for life and retirement and Sarah will provide more detail in her remarks.
Third I will provide an update on a few strategic initiatives, including the announcement last week relating to private client services, our MGA partnership with stone point capital.
Our announcement on Tuesday of the sale of crop risk services.
And our intent to sell layer health care, which is a part of corbridge in Ireland second largest health insurance provider.
Fourth I will provide more information on capital management actions.
Lastly, I will review progress on our path to a 10% plus <unk>, including an update on the work we are doing on the future state business model of AIG.
Turning to general insurance, let me provide more detail on first quarter results, starting with our strong growth in gross and net premiums written.
When we refer to gross and net premiums written all numbers have been adjusted for both foreign exchange and the impact of the lag elimination.
Gross premiums written were $12 billion, an increase of 9% with global commercial growing 13% and global personal decreasing 4%.
Net premiums written were $7 billion, an increase of 10%.
This growth was primarily driven by global commercial which grew 11% while global personal grew 6%.
In North America commercial we saw very strong growth of 15% and net premiums written due to Validus re which had over 40% growth year over year due to the exceptional results. We achieved with our January one treaty placements, which I discussed in detail on our last call.
Lexington, which grew over 25% led by wholesale property and casualty.
Double digit growth in captive solutions and Gladfelter.
Focusing on Lexington for a moment I would like to highlight a few achievements from the first quarter.
The business continues to drive excellent performance impressive growth and has consistently improved its portfolio quarter after quarter over the last couple of years.
Lexington is tremendous growth has been achieved through its relevance in the marketplace and increasing its market share not from increasing limits deployed.
Retention, new business and rate had been the key drivers of Lexington financial performance.
Lexington has now seeing double digit rate increases for 16 consecutive quarters and cumulative compounded rate increases total over 100% since the first quarter of 2018.
Additionally over the last few years, the average size of a lessons and property primary policy went from $100 million and limits deployed to $5 million.
This has substantially reduced volatility and Lexington portfolio.
Our thoughtful and prudent growth strategy together with our shift in focus to wholesale distribution continues to serve us well, particularly in the E&S market.
I also want to provide more color on Validus re we provided significant detail on the one one renewal season on our last call and I think it's worth expanding on a few items from the first quarter.
Net premiums written were very strong and balanced in Validus re and we continued to meaningfully improve the quality of the portfolio.
Rate improvements were particularly strong in U S property international property, Marine and energy casualty and specialty lines.
With respect to April one renewals across the portfolio gross and net premiums written increased and within international property limits deployed were reduced slightly in Japan property cat risk adjusted rates were up approximately 20%.
As we consider our deployment strategy.
At the June one renewal cycle, which focuses on U S. Wind exposure, we will continue to maintain a prudent approach on limits deployed we do not expect to deploy additional limits beyond our current aggregate allocated to Florida, Although we do anticipate significant rate increases and improved terms and conditions like general insurance the.
<unk> portfolio has been completely re underwritten with a focus on risk adjusted returns.
The business had a terrific first quarter and is well positioned for profitable growth through the rest of the year.
Shifting back to a 15% net premiums written growth in the first quarter. This result was impressive despite the headwinds we continue to see in financial lines, where overall net premiums written contracted 9% due to increased competition, putting pressure on pricing as well as continued slowdown in M&A and other <unk>.
<unk> business.
We are one of the very few lead markets and large account public D&O, where primary rates have remained relatively flat year over year.
In contrast high excess public company D&O saw rate declines greater than 20%.
To put this in perspective this represents a little over 5% of our overall North America financial lines business and we will continue to manage this book very prudently.
We have deep domain knowledge and experience data best in class underwriting capabilities, and leading claims expertise that allow us to differentiate ourselves in the D&O market place.
During the past year, we continued to see new competitors with limited experience enter the high excess public D&O market. This is driving down pricing in what is traditionally the most commoditized portion of a placement.
Despite these dynamics, we remain disciplined on price and are taking a long term view of this line of business.
We have significant scale and geographic balance on our portfolio and we will not follow the market down.
Turning to international commercial net premiums written grew 6% primarily due to property, which was up over 40%.
Global specialty which was up over 15% in casualty, which was up over 15%.
Global commercial had very strong renewal retention of 88% and its enforced portfolio International was up 200 basis points to 88% and North America was up 100 basis points to 87%.
As a reminder, we calculate renewal retention prior to the impact of rate and exposure changes.
And across global commercial we continue to see strong new business, which was over $1 billion in the first quarter.
International commercial new business was over $590 million led by specialty which increased its new business by over 50% driven by energy and marine.
North America commercial excluding Validus re achieved new business of over $480 million, driven by Lexington, which saw excellent new business growth of over 50%.
With respect to rate in North America commercial excluding Validus re rates increased 7% in the first quarter or 8%. If you exclude workers' compensation and the exposure increase was 2%.
In North America commercial rate was driven by Lexington, wholesale, which was up 26% with wholesale property up 35%.
For Lexington property wholesale this was its strongest quarterly rate increase.
Right and retail property was also up significantly at 32%.
International commercial rate increases were 8% driven by Talbot at 16% International property at 11% and specialty at 9%.
The exposure increase in the international portfolio was 2%.
Right plus exposure remains above loss cost trend at 9% and North America, 10%, if you exclude workers' compensation and 10% and international.
Turning to personal insurance.
First quarter results reflect our continued repositioning of this business, especially PSEG given our announcement of the creation of a managing General agency and partnership with Stone point capital I will provide more information on the MGA later in my remarks.
North America personal net premiums written increased 57% driven by lower quota share sessions in TCG at January one as we transitioned to riding the business as an MGA along with the recognition of an improved portfolio.
The combination of improved pricing and our admitted business and more business migrate into the non admitted market has a very positive impact on <unk> accident and policy year loss ratios.
This will earn in through the second half of 2023 and into 2024.
Entering 2023.
We required less excess of loss reinsurance on the upper end of our reinsurance program due to realized reduction in <unk> at all return periods as a result of ongoing improvements in risk selection and reductions in aggregate in peak zones.
More specifically all apparel and all return periods from $1 20 to 100000 reduced on average by 40% while those same return periods with respect of wildfire reduced on average by 60%.
These dynamics further impacted net premiums written in the first quarter.
Syndicate 2019 continues to act as a mechanism to enable third party capital providers to support <unk> high and Ultra high net worth business for the 2023 accident year.
In terms of expectations for <unk> for the full year, we expect net premiums written growth to be at or higher than we saw in the first quarter the loss ratio to meaningfully improve and the acquisition ratio and general operating expense to also improve.
Turning to international personal net premiums written were largely flat in the first quarter travel and warranty grew while personal property declined all driven by a further refinement of our cat reinsurance cost allocation methodology, making year over year comparisons difficult.
Accident and health had some timing issues that impacted net premiums written in the first quarter.
We expect to see growth in international personal for the remainder of 2023 and believe results will continue to strengthen as we move through the year.
Shifting to combined ratios as I noted earlier, the first quarter accident year combined ratio. Excluding catastrophes was 88, 7%, an 80 basis point improvement year over year.
And global commercial the first quarter accident year combined ratio, excluding catastrophes was 84, 9%, a 110 basis point improvement year over year.
And we reported a 24% increase in underwriting income.
The North American commercial accident year combined ratio, excluding catastrophes was 85, 7%, a 240 basis point improvement year over year.
The international commercial accident year combined ratio, excluding catastrophes was essentially flat at 83, 7%, which is an outstanding result.
Global personal reported a first quarter accident year combined ratio, excluding catastrophes of 98, 6%, a 120 basis point increase from the prior year quarter largely due to a decrease in earned premium from our deliberate reduction in gross exposure and <unk> in North America.
Now, let me comment on catastrophes.
The cat loss ratio in the quarter was four 2% or $264 million of catastrophe losses.
Our largest loss in the period was from two storms in New Zealand, which accounted for $126 million of catastrophe losses.
Looking at North America total losses from catastrophe related activities in the first quarter were $116 million, which.
Validus re and international excluding Japan, we have eroded approximately $75 million of our aggregate retention and have approximately $75 million net remaining plus the annual aggregate deductible for each cat loss for the rest of the year.
As we described on our last call. The reinsurance program. We structured at this year's January one renewal provides us with the ability to manage volatility and severity.
Looking ahead to the rest of 2023, we expect to see very strong topline growth and general insurance.
Turning to life and retirement the business delivered strong performance in the first quarter adjusted pretax income was $886 million for the first quarter and adjusted return on segment equity was 10, 7%.
First quarter results benefited from continued growth and spread based products and related spread income.
As I mentioned earlier premiums and deposits grew significantly in the first quarter driven by strong new individual retirement business, which despite increasing surrenders related to interest rates contributed to growth in the general account.
The balance sheet and capital position of Corbridge remains strong with $1 $8 billion apparent liquidity.
Turning to our strategic initiatives last week, we executed definitive documentation with stone point capital for the launch of private client services and MGA that will serve the high and ultra high net worth market.
We are excited about the prospects for Pcs and are confident of the value of this new operating structure will deliver for clients brokers and other stakeholders.
We look forward to continuing this journey with the PCF management team and the ongoing support of stone point capital.
Subject to regulatory approvals. The MGA is expected to formally launched in the third quarter of this year and we expect to bring on additional capital providers through the second half of 2023.
As part of our ongoing review process, we regularly assess the composition of our portfolio of businesses to ensure it is aligned with our long term strategy and best positioned to create value for our shareholders and other stakeholders.
As part of this review as you saw in our announcement on Tuesday, we executed definitive documentation to sell crop risk services or Crs, two American financial group for $240 million.
We acquired Crs as part of our broader acquisition of Validus Holdings in 2018.
AIG will continue to write business.
For the 2023 spring crop season, which ends June 30.
We expect approximately $7 million to $800 million of net premiums written for 2023, 75% of which booked in the first quarter.
Starting in the third quarter AIG will act as a fronting partner for American financial group during a transitional period.
For full year 2023, we expect to retain about 800 to 900 million of earned premiums $750 million of which will earn in over the remainder of the year.
Crs is a well run an attractive business led by a high quality management team.
And American financial group, we have found a high quality partner for Crs and its employees and believe the business will benefit from being part of a larger combined platform.
We also continually review the product portfolio and geographic footprint Corbridge as we position this business for the future as a fully Standalone company.
For a comprehensive review of the health product offering we decided to evaluate strategic alternatives and a potential sale of layer health care, the private medical insurance business in Ireland.
We believe this will help to streamline the corporate portfolio and allow us to focus on life and retirement products and solutions.
Turning to capital management, the first quarter marked another quarter of continued progress and execution of our balanced strategy.
In addition to the first quarter share repurchases and dividends that I mentioned earlier against the backdrop of an unstable macroeconomic environment. We thought it was prudent to raise $750 million of debt at the end of March.
This provided us with financial flexibility to pay down our near term debt maturity and complete additional share repurchases at what we viewed as attractive share prices.
Turning to return on common equity, we remain highly committed and laser focus on delivering a 10% plus <unk>.
Through the first quarter, we continued to make meaningful progress on the four components of our path to deliver on this commitment.
As a reminder, these components include sustained and improve underwriting profitability.
Executing on a simpler leaner business model across AIG.
Operational separation and deconsolidation of Corbridge and continued balanced capital management.
Given the number of strategic initiatives, we are executing at once we are taking a long term view.
While measuring progress in 90 day increments.
We advanced each component during the first quarter and expect this to continue throughout 2023.
As I discussed earlier, our first quarter financial results were excellent with continued topline growth and improvement in underwriting profitability in general insurance.
Over the last few months, we accelerated our work to establish Aig's future state business model.
Sequencing has been very important on our journey and the work that's been accomplished over the last few years on.
On the general insurance turnaround AIG 200, the separation and IPO of Corbridge and restructuring of our investment management group.
This has positioned us to move forward as a more focused and simplified AIG.
Evolving our future state business model will result in us moving away from the conglomerate structure AIG operated in for decades.
We will eliminate overlap and significantly reduced the centralized infrastructure across the company.
It will lead to a leaner business model, particularly in our operations.
And future state, we expect a redefined AIG parent expense structure should be approximately 115% of premiums.
Today is roughly $250 million to $350 million.
AIG parent will have five primary roles and objectives.
Public company matters, including finance legal compliance and regulatory oversight as well as corporate governance.
Communications with key stakeholders, including the investment community rating agencies regulators policymakers and AIG colleagues.
Risk management.
Culture performance and human capital management.
And strategy, including business development, M&A and design and execution of key initiatives.
As we progress our future state business model, we anticipate achieving approximately $500 million in cost reductions at AIG parent.
And our cost to achieve of around $400 million with substantially quicker earn in of savings that we achieved with AIG 200.
As expense savings begin to earn through the reductions will largely be seen in other operations.
Which is where general operating expenses are currently accounted for with respect to Corbridge I took you through our current thinking on separation and timing of the secondary offerings.
Lastly on capital management, we continue to maintain appropriate levels of capital in our subsidiaries to support profitable growth.
We remain on track to reduce AIG common stock outstanding to be between 600 650 million shares.
And achieve a debt to capital leverage at the lower end of our 2025% range post deconsolidation of corbridge.
As I noted earlier, we increased our common stock dividend by 12, 5% starting in the second quarter of this year.
And in addition to our stock repurchases in the first quarter to date, we have repurchased $240 million of AIG common stock in the second quarter.
Apart from the progress we're making on these components of our path to a 10% plus <unk>. We also expect tailwind from higher reinvestment yields.
We are confident that our continued progress on strategic initiatives and our capital management strategy will allow us to achieve our <unk> targets and deliver long term profitable growth that benefits all of our stakeholders I will now turn the call over to sabre.
Thank you Peter this morning, I will cover two accounting changes provide more details on first quarter results and give an overview of commercial mortgage loans first the one month lag and financial reporting for the General insurance International segment was eliminated last quarter. The lag elimination did not impact earnings significantly, but it did affect premiums right.
In comparison to 2022 details on the premium impacts are in the financial supplement on page 26.
Second we adopted the change in accounting standards or certain long duration products, commonly called L. DTI.
Yesterday, eight cases were filed that provide restated prior year financial results for AIG incorporate the cumulative effect at year end 2022 is an increase of $1 $5 billion to adjusted equity and an increase of $1.1 billion to total shareholders' equity. This impact is consistent with our previous guidance as a reminder.
This is a GAAP accounting change only and does not impact statutory results insurance company cash flows or economic returns.
Going forward, we expect a modest run rate increase in Illinois, apta, and less market and mortality driven volatility from the change in accounting standards.
Turning to the quarter as Peter mentioned Aig's first quarter. Adjusted after tax income was $1 $2 billion or $1 63 per diluted share up 9% from last year on a restated basis.
25% from originally reported here.
Key trends in the quarter and similar to the last three quarters, where higher Gi underwriting results and higher income from fixed maturities and loans and lower alternative investment income compared to the prior year quarter. There was a higher impact from noncontrolling interests from the corbridge IPO and <unk> 22.
<unk> net investment income on an <unk> basis was $3 1 billion similar to the fourth quarter income from fixed maturities and loans in both Gi and LNR rose sequentially and over the prior year, while returns on alternative investments were down $593 million compared to very strong annualized rate.
Turns of 28% last year.
Income in fixed maturities and loans rose by $573 million over the prior year with average new money reinvestment rates of $5 three 5% about 220 basis points of both sales and maturities the yield rose to $4, two 9% up 78 basis points from 122, and 23 basis points over.
<unk> 22.
The increase in fixed maturity yields resulted from a proactive repositioning over the last two orders in the U S. Gi portfolio, we sold and reinvested about $6 billion in fixed maturities, resulting in a realized loss of $224 million that added nine basis points of Gi yield improvement for the quarter, we expect <unk>.
Currently yield pick up from this repositioning into Q 'twenty, three and also from higher reinvestment rates throughout 2023 based on the current rate and spread environment.
Turning to the segment G. I adjusted pre tax income or <unk> was $1 $2 billion $37 million higher than <unk> 22, principally due to a $56 million increase in underwriting income from both higher earned premiums and a one point improvement in the calendar year combined ratio, which.
Was 91, 9%.
Peter covered underwriting results in detail, but I wanted to add that Gi reserves had favorable prior year development net of reinsurance and prior year premiums of $54 million.
Turning to LNR results for the first quarter, <unk> was $886 million down $48 million compared to $934 million and <unk> 22 as restated.
Consistent with GI LNR had a strong increase in base portfolio investment income, but lower alternative investment income mortality experience improve but fee income was down due to lower capital market levels compared to a year ago.
As Peter noted earlier, our premiums and deposits were very strong at $10 4 billion.
Notably individual retirement sales were $4 9 billion, a 26% increase over the prior year quarter with record levels of fixed and fixed indexed annuity sales because of higher crediting rates.
Group retirement deposits grew 19% with higher out of planned fixed annuity sales and new plant acquisitions.
So on fixed and fixed index annuity sales net of surrenders resulted in $1 $3 billion with positive flows to the general account and individual retirement up from zero point $7 billion last year, while surrenders are up they remain below projections.
Variable annuity net flows which impact the separate accounts were negative.
To conclude on earnings for the quarter other operations adjusted pre tax loss or a P. T. L was $491 million or $70 million increase due to lower apta from consolidated investment entities and asset management, which had strong private equity results in <unk> 'twenty to Corp.
Corporate <unk> decreased $27 million from the prior year and $77 million or <unk> 22, despite $29 million of additional expense related to the corporate separation.
Turning to Aig's balance sheet book value per common share was $58 87 at quarter end up 7% from year end, principally due to higher valuations unavailable for sales securities due to lower long term interest rates.
Adjusted book value was $75 87 per share roughly flat with year end.
At the end of March we issued $750 million of senior notes a portion of which was used to pay down in April bond maturity, our leverage ratio declined to 32, 8% down about a point from year end, even with the new issuance due to the change in OCI in the quarter.
Excluding <unk> and the fortitude embedded derivative that leverage was 26, 3% for the first quarter of 2023 Aig's consolidated adjusted our Oce was eight 7% comprised of 11, 6% in Gi and 10, 7% in Illinois as Peter discussed we are laser focused on achieving a 10.
Percent, plus Aro CE post deconsolidation.
Peter provided a lot of detail on the quarter. So I'll use my remaining time to cover investments, particularly commercial mortgage loans given the recent focus on this asset class.
Firstly I want to emphasize that our investment portfolio is grounded in the liability profile of our two insurance businesses, we strive to achieve strong risk adjusted return, while matching the duration cash flow and liquidity needs of the liabilities.
Over the last several years, we have improved the risk profile of the investment portfolio I, reducing capital intensive less liquid or more volatile assets such as hedge funds with the onset of Covid and again with rising interest rates last year, we further tightened investment guidelines and moved up in quality, including the Gi repositioning mentioned.
Earlier, and also sales of LNR non investment grade assets.
Turning to our commercial mortgage loan exposures I'll start by noting that our mortgages are senior secured loans on high quality properties that are well diversified by type and geography with strong loan to values or ltvs, averaging 59% and debt service coverage ratios, averaging one nine times.
The lead lender on more than 80% of our loans, which gives us important control rates.
Excluding fortitude funds withheld assets, we had $33 $8 billion of commercial mortgage loans at the end of March of which 33 billion were at Corbridge and $3 5 billion of general insurance.
The largest property type is multifamily housing or apartments about 40% of our commercial mortgage loans.
Industrial property loans or about 16% of the portfolio.
Both multifamily and industrial are performing well.
We are however focused on traditional U S office, which is $5 4 billion or 2%.
<unk> of Aig's invested assets.
Our U S office allocation has been shrinking for several years, particularly when we tightened underwriting standards further for office retail and hotels with the onset of Covid.
94% of the office loans are high quality rated see them on RCM, two with debt service coverage, averaging about $2, one time and weighted average ltvs of 64% valuations are updated annually by a third party and we continue to monitor valuations given rising cap rates. We also have a crew.
Our seasonal allowance against the portfolio of about $330 million or three 7% against the office loan portfolio and $584 million for the total commercial mortgage portfolio or one 7%, which is higher than many peers as we use C. M. B S default data in our methodology.
Roughly three quarters of the building securing our loans are class a or newer buildings with better amenities. The majority are in the top five U S metropolitan areas and concentrated in central business districts, including in New York City, which historically has been one of the strongest office markets in the country.
Today, we are intensely focused on office loan maturities in the next two years about $2 billion or 28 loans. We are already in discussions with many borrowers about their plans and our requirements were refinancing our extension, including additional equity revised terms or other commitments, while valuations are under pressure cash flows are there.
Our primary source of debt service for our loans and we will continue to monitor the loans carefully.
We look forward to updating you on our investment performance in the quarters ahead.
Wrap up our first quarter 2023 results demonstrate continued sustained and strong financial results.
Rising investment portfolio yields significant progress against strategic initiatives robust capital and liquidity and continued progress on our path to a 10% plus our LTE with that I will turn the call back over to Peter.
Ladies and gentlemen, if you'd like to ask a question. Please press star one one if your question hasn't answered and you'd like to remove yourself from the queue.
You. Please press star one again.
Our first question comes from Meyer Shields with BW. Your line is open.
Thanks, Good morning, Peter I wanted to address one aspect of growth in and cover the I think a ton of detail which is helpful. But.
The net to gross ratio didn't change that I would've thought that.
Based on the current dynamics in the property cat market and much improved.
Performance on a lot of casualty lines that have been heavily reinsured that we'd see AIG retaining more of its gross premiums, but hoping you could talk to that.
Okay.
Hi, there this is Quentin I think.
We're having a little audio technical difficulties have you can bear with us for just one moment will be back in just one second.
Okay.
Okay.
Okay.
Sure.
Can you hear me now.
Yes, youre coming through loud and clear Peter.
Do you want to just repeat your question.
Yeah, absolutely and sorry, I actually had a good answer to it this was not a microphone that worked.
So.
Back to your question is that.
We had.
You have to look at it.
Portfolio composition to be able to answer the question and.
Validus re obviously had meaningful growth on a gross and net during the quarter and so therefore you know.
It's hard to look at.
The sessions year over year, when you're having a retro program that fits the portfolio that you are underwriting.
We've never had a <unk>.
Strategy that we're going to time the market with our reinsurance partners they've always been strategic they've always been supportive they've always deploy the capital in support of AIG and so we were not going to.
Do anything other than to try to get the appropriate terms and conditions with them and have not really changed much of our risk appetite in terms of taking that and I think that has.
Generated a terrific result.
You know for us on net premium written but also on the combined ratios. So I think I wouldn't look into just one quarter in terms of discussions.
And as I said, we have a lot.
In terms of the guidance I've given on.
TCG, which we will still assume a lot of risk.
And I guess, you know versus played out for the full year, we're not looking to do anything materially different.
Okay perfect. That's helpful and I don't know if this is even a good question.
But does the changing approach to north American personal line have any.
Implications for the international personal segment.
Okay.
Yes.
It really doesn't matter I mean, they're really distinct businesses, I mean, certainly our travel and warranty.
Platforms that are global in that.
Give us capabilities across the world, but as you know.
Another client group in particular in the U S is a unique asset began the guidance I gave in the prepared remarks, it's one that we believe are.
We will grow the net premium written because we don't believe we need the quota shares anymore. After the excellent job. The team has done in repositioning and re underwriting that pulse portfolio, we have substantially less cat in aggregate.
That we once did so I think that's something that will be a little different in terms of if you look at international and international we have a terrific personal insurance business.
Some of it was affected by Covid, it's throwing back between Japan's personal insurance, our global accident health, which is predominately international.
As well as you know our travel and warranty which are rebounding in terms of growth.
I don't think that Theres a lot of correlation between.
International and North America, but we believe in and we're investing in and Youll continue to see improvement it will just be at a different pace because of the <unk>.
Anomaly of the high net worth business.
Okay perfect. Thank you so much thank you Omar.
Thank you. Our next question comes from Paul Newsome with Piper Sandler Your line is open.
Good morning, also had a couple of questions.
On the personal lines business for micro and macro.
My understanding and tell me if I'm wrong is that much of the change to the NGA is related.
And does that mean that we should expect the expense ratio to fall over time as the NGA.
Kim speed.
And let me just correct me if I'm wrong does that shift around how we think about sort of the relationship between expenses losses in that business over time, not necessarily next quarter, but overtime.
Paul Let me make sure I understand the question are you asking in terms of what's going to happen to the expense ratios over time as we start to reposition to grow the business.
Yes, I am.
Okay. Thank you.
This year as I.
Set in my prepared remarks.
We are going to see a lot more net premium written the reason for that is as we were repositioning.
The business over the last two years, we bought very low excess of loss catastrophe.
Reinsurance, we bought a substantial quota share we ceded significant amounts of syndicate 2019, which also had retrocession behind that.
A variety of forms and so the net premium written.
<unk> was not that large is as <unk> seen and so part of the repositioning.
With stone point and having an MGA. One is that we think there is tremendous growth opportunities that exist in the business of other capital providers.
And believe that how we have repositioned the business through rate increases and disciplined underwriting on the admitted side and then also the non admitted became an option for us to have flexibility in form and rate and so that was very positive for us in terms of repositioning the business as we look to 2023 and beyond.
We believe that the business is going to perform much better much more profitable and we don't need to seed off as much on the quota share. So as a result in this particular calendar year, what you'll see is a lot of net premium written growth improved loss ratios in both the expense ratio on an acquisition basis as well as the <unk>.
General operating expenses will improve.
So the overall combined ratio will improve dramatically, we're not going to be where we want to be in 2023, but believe by the time. We hit 2024 those results will continue to improve.
That's great.
Sure.
Maybe a big picture.
Yes.
Talking about a little bit more of a big picture cat exposures I mean, it looks like I'm just looking at.
At the general insurance overall.
The cat load is pretty much stabilized.
But that's been a huge part of the improvement overtime.
Do you think we're pretty much done and it did I'm not talking about next quarter I'm talking about years to come.
Tom.
Making this portfolio of businesses have.
Cat load the block.
The run rate, we should be thinking about it long term.
The team has done an incredible job of underwriting the property line of business across all of AIG over multiple years, our ability to reposition that portfolio. We talk a lot about aggregates, we talk a lot about reductions and we talked a lot about wherever you want to grow I think we were in a terrific place as we enter 2023.
From that hard work and when I look at where we decided to grow we constantly talk about where the best risk adjusted returns available in the marketplace, whereas our capacity most valued and where are we value for clients. So when I looked at where we've grown.
Validus Res certainly was a big part of that Lexington has been hitting it out of the park on just about every aspect whether it's top line growth retention new business rate like how they actually are more relevant in the marketplace.
Working with Dave Mcelroy and the team we've taken back some of the retail property, but then in other parts of the world. We've taken it back up so like we've repositioned the portfolio and then have coupled that with the reinsurance to reflect the portfolio is today. So if I summarize what happened at one one is that we saw a terrific opportunities for Validus re to grow. So we took the <unk> up there.
Little bit we've dramatically took the P&L down in the private client group.
Substantially again I gave the return periods at every return pay from $1 20 to one of the thousands of substantially reduced on all apparel and in particular on wildfire and we actually took the commercial book Despite our growth in Lexington in global specialty we took those pms down as well. So overall when you look at the increase <unk> in the first quarter of Validus re.
And the reductions that we add in the commercial business and the personal business. Our overall <unk> are down year over year I think that's a tremendous outcome. When you look at where we're growing our drive on risk adjusted returns, we coupled out with reinsurance and our overall <unk> are down at all the critical return period.
So I think all of that's been purposeful the team's done an unbelievable job executing.
Alright, Thanks, Bill I appreciate the help.
Thanks, Paul.
Thank you. Our next question comes from Michael Ward with Citi. Your line is open.
Thanks, guys good morning.
When they could discuss how you think about your excess capital just given the macro volatility.
You raised some debt it sounds like for some prudent liquidity and for buybacks.
I guess, given the share price I guess, the buyback could have been a little bit higher.
So just wondering from here should we expect that you will sort of hold a bit more capital against uncertainty.
Thank you and good morning.
We were.
Very disciplined in terms of the $750 million.
Debt raise our gamma less favorite comment a little bit more on liquidity and capital, but when I look at all the different components of.
Our capital strategy I think we executed incredibly well in the first quarter I mean, our primary focus is to make sure that we have.
The appropriate capital levels in the insurance company subsidiaries for growth and so it gave us tremendous opportunities.
At one one as it will give us for the entire year very focused on our leverage ratios and being at the lower end just to give us financial flexibility and of course I've been leading everybody every quarter, saying, we're looking at the dividend. We're looking at the dividend and to have a 12, 5% dividend increase not only helps complete.
Some of the capital management strategy, we've been talking about but also show the confidence we have on our earnings.
Our managing liquidity, but I'll I'll have Sarah comment a little bit on the parent liquidity and at our approach to capital in it and it has proven to be Conservative Star Sarah. Thank you, Peter Yes, and I would just comment that first of all we look at our capitalization both in basin stress scenarios. I mean, this is just what I would call basic risk management procedures that we.
And we're very comfortable with our balance sheet, even in the current environment, where obviously, there's a lot of stress on the system with the debt ceiling and the rest.
From where we sit today, we have very strong robust capital and liquidity and as Peter noted the board was comfortable raising the dividend for the first time in in many many years because of the significant turnaround of Gi underwriting results over the past five years. So as we as we sit here today, yes, we will continue to.
To evaluate our financial flexibility for additional share repurchases I'm keeping in mind that our first goal is to maintain a strong balance sheet that can withstand turbulent times.
Very helpful. Thank you.
I guess, maybe on the crop deal I guess I was just wondering are there if you could maybe point to any other sort of targeted units, where you can do sort of similar value unlocking deals there.
As you sort of work towards margin improvement and simplification.
Great. Thank you.
We're always looking at the portfolio and looking at areas, where we can add.
Where we can improve the overall structure of of AIG and looking at the different parts of the world that we compete in.
I think crop is a little bit anomalous just because we really do believe it's a very good business, but.
But you know how it works, which is driven by commodity prices and yields and I think that having scale is really important and while the top line that we publish on a gross and net basis is a is significant that's gone up 40%, 50% if not more over the past several years based on those components.
And we believe that crop risk services in order for it to achieve its ultimate potential.
That being part of a bigger enterprise and one that valued at like Great American.
It was the prudent approach for us at this time and so that was something that was specific to that business. It was specific to how we looked at strategically position AIG for the future and also making certain that with the crop risk services. It had a great opportunity to scale and realize its potential so I feel like we.
No really found a very good partner and that's really what drove the outcome for Crs.
Thanks very much.
Good day.
Thank you. Our next question comes from Alex Scott with Goldman Sachs. Your line is open.
First one I have is on the separation of Corbridge I know you mentioned the base case is still our secondaries, but I think you also mentioned that you were considering some alternatives.
So I just wanted to see if you could extrapolate on that a bit at all.
What kind of alternatives could could you look towards and.
How could some of those things potentially for things for shareholders.
Yeah, Thanks, Alex I'll try to expand a bit on it because as you can imagine theres not lot of more detail that I can.
Sure beyond my prepared remarks, we do believe the secondary is the preferred path.
But obviously, it's subject to market conditions as we saw in the first quarter, but we're prepared to go in the second quarter. Our objective has not changed which is for AIG to reduce its ownership stake in corbridge overtime and.
And so I think it's prudent looking at a variety of different options to make sure that we're driving value for shareholders and provide a path that will recognize the value of corporates corbridge has done a terrific job since we've announced.
You know that we were going to commence upon doing an IPO getting themselves positioned.
To be an independent public company.
And the stock was trading at a deep discount in the first quarter I mean, one of the.
Alternatives I don't think we're going to go much beyond this was what we announced on lay of health care.
So making sure we're sticking to the core business of Corbridge and we'll just give you updates as.
The weeks and over the next month progresses, but number of prepared and are very excited about hopefully getting the secondary done in the second quarter.
Got it.
If I had is on corporate expenses.
I think it was the first time, you guys gave a bit more explicit guidance around where corporate expenses for remain co could shake out at that one to one 5% premiums and I just wanted to make sure I understood. Some of the mechanics I mean.
What I think about that level I mean is that what I should expect and sort of corporate G. O E. Overall corporate costs I mean, how do I think about that and then just a technical question. The investment that I think you mentioned leading up to that.
Will that go through operated and also be reflected in corporate.
Yes.
We try to provide as much detail as we could on the expense savings certainly let me start with AIG 200, because we still have more to earn through on AIG two hundred's savings in 2023 and 2024, it's over 50% of that will be earned in.
Mostly through the second through fourth quarter of 2023.
We have.
<unk> begun to separate.
Corbridge in but upon deconsolidation.
Approximately $300 million of the AIG corporate expenses will move to life and retirement. So that's another variable that you need to consider we also gave.
Guidance as we're working through our future state business model.
$250 million to $350 million of apparent expenses and then the remaining will.
B.
Worked through to fit the business model in terms of what we're designing for the future of AIG, we want to make sure that we are a lean model that's not synonymous with expense cutting but it is how we're going to be in each market, how we face off with our clients and our distribution partners to maximize growth and all the opportunities that presented themselves to AIG and.
Making sure that we have a structure that supports that.
Sequencing is important.
We've been working at a variety of different initiatives that are substantial and we are performing on all of them, making certain that general insurance has the capital and support it needs to grow in this market.
Our repositioning some of our businesses, which we covered in my prepared remarks, making sure. We complete AIG 200, the operational separation preparing to do the secondary.
Advancing <unk> capital structure, and then making sure that we're working to get this future state business model implemented, but it has to be in that order and we've given you the guidance. We've done the work we know that the savings that.
We will achieve some of that is going to go into the business and so the business has to get rationalized and leaner in order to be able to absorb more expenses, but our commitment is the $500 million. In addition to the guidance that we've given and then the other components and we're highly confident we'll execute on that at the right time, meaning we've got to get these other things further along.
And then when we have clear line of sight in terms of separation.
We will be able to execute on the target operating model.
Got it thank you.
Thank you. Our next question comes from Brian Meredith with UBS. Your line is open.
Hey, Thanks, yet Peter gave us a lot of detail on the growth in the commercial lines business, obviously very strong growth.
Try to dumb it down a little bit here, if we look at with the growth is access called Pallas and crop.
It would have looked like and what was the tailwind from Dallas to crop just from the commercial lines growth in a year over year basis. In reason I'm asking is those are obviously very big first quarter premium numbers. So I just want to make sure I'm not extrapolating that for the remainder of the year.
Thanks, Brian .
Certainly validus contributed a meaningful amount of the growth, but look at we bought a lot of retro is the first quarter, it's not all property. So.
Each quarter is a bit different in terms of not being able to straight line. It crop risk services had low single digit growth. So that that was not a contributor at all in terms of net premium written.
We had very strong as I said growth in our specialty business.
In Lexington, and our property.
Offset a little bit by financial lives, but.
Flip the guidance in there because I feel very confident that we're going to have strong growth throughout the year, even though the quarters are a little bit different a bit.
Businesses like Europe is heavy one one.
And we start to have sort of different.
Mix of business over the second third and fourth but I feel <unk> seen the pipeline.
Looking at how you grow I mean, the first thing I would look at is what's the client retention new business, what's happening with rate and are we growing in the businesses that we want to and I think.
We are checking all the boxes here and see that those businesses have more opportunity in the future not less and so I think the growth that you saw in the first quarter. Obviously, there is a mix of business, but I would expect to see similar growth throughout the rest of the year.
Okay very helpful. And then second question just curious some other companies are talking about how the commercial property markets are even further firming up in the second quarter. There's more business available are you seeing the same kind of dynamics are things actually continuing to prove here and the commercial property markets.
Yeah. Thanks, Brian Yes, we are seeing that I mean again, it's early in the second quarter, but views on April and as we look to.
The rest of the second quarter, we're seeing property continue to firm up and getting stronger than it was in the first quarter. So.
That's something that we're trying to be a focus on clients, making sure we're driving value and.
And we have a lot of capital to deploy so expect to be trading activity in the second quarter.
Thank you okay, well. Thank you everybody sorry for the one minute hiccup on the on the microphone, but greatly appreciate the <unk>.
Dialing in and I wish everybody a great day.
Thank you. This does conclude the program you may now disconnect everyone have a great day.
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