Q3 2023 American International Group Inc Earnings Call

November 2, 2023

Good day.

Bert.

Great.

The conference call. This conference is being recorded.

Sure.

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.

<unk> filings with the SEC 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 or opinions should change today.

Today's remarks May also include non-GAAP financial measures. The reconciliation of such measures. 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 AIG Dot Com. Additionally, note that today's remarks will include results of Aig's life and retirement segment and other operations on the <unk>.

Same basis as prior quarters, which is how we expect to continue to report until the deconsolidation of corporate financial AIG segment, and U S. GAAP financial results as well as Aig's key financial metrics with respect to their to differ from those reported by corporate financial corporates.

Corporate financial will host its earnings call on Friday November 3rd.

Finally, please note that today's remarks as they relate to net premiums written in general insurance are presented on a comparable basis, which reflects year over year comparison on a constant dollar basis adjusted for the international lag elimination and the sale of crop risk services and the sale of Validus rate. Please.

Please refer to the footnote on page 26 of the third quarter financial supplement for prior period results for crop risk services and Validus re 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 today to review our third quarter financial results.

Following my remarks favorable provide more detail on the quarter and then we will take questions, Kevin Hogan and David Mcelroy will join us for the Q&A portion of the call.

In the third quarter AIG continued to deliver exceptional results.

We made significant progress in our strategic operational and financial objectives, reflecting continued execution across our entire organization.

During my remarks this morning.

We'll discuss the following topics first aig's financial results, including life and retirement and provide an update on recent divestitures.

I will provide the results of Aig's General insurance business.

Third I'll provide an update on the casualty insurance market more broadly and aig's approach to our casualty portfolio.

Fourth I will provide an update on our capital management strategy and the progress we have made this quarter.

<unk> will provide more detail on aig's balance sheet and capital position in her remarks.

And lastly, I will reconfirm, our guidance with respect to our path to a 10% plus <unk> post deconsolidation of coverage.

Financial highlights from the third quarter included adjusted after tax income was $1 2 billion.

Or $1 61 per diluted common share, representing a 92% increase year over year.

Consolidated net investment income.

On an adjusted pretax income basis was $3 3 billion of.

A 29% increase year over year.

Generally.

Net investment income was $756 million, a 30% increase.

Net premiums written in general insurance grew 9%.

General insurance underwriting income in the quarter was $611 million, which improved over 250% from the prior year quarter.

The adjusted accident year combined ratio, excluding catastrophes was 86, 3% a 210 basis point improvement from the prior year quarter, which is an outstanding result.

Our cat loss ratio was six 9% with $462 million of total catastrophe losses, including reinstatement premiums, which included $70 million from Validus re.

We had favorable prior year reserve development of $139 million.

<unk> favorable loss experience on our portfolio.

Resulting from our continued focus on underwriting discipline.

Life and retirement business also delivered strong results in the third quarter with continued sales momentum and spread expansion.

Life and retirement adjusted pre tax income was $971 million up 24% year over year.

Premiums and deposits grew 4% year over year to $9 2 billion.

Driven by strong fixed indexed annuity sales, which exceeded $2 billion for the third consecutive quarter.

September marked the one year anniversary of <unk> initial public offering and since the IPO corporates has returned approximately $1 4 billion to shareholders and is well on track to its committed payout ratio.

With respect to our remaining ownership of Corbridge, we continue to evaluate options that are aligned with the best interest of shareholders and our other stakeholders. We're very proud of the achievements that corbridge has delivered towards its operational separation as a public company and we remain committed to reducing our ownership and eventually a full separation.

Sure.

Turning to Aig's balance sheet during the quarter AIG returned over $1 billion to shareholders through $785 million of common stock repurchases and $261 million of dividends. In addition, we purchased $170 million of common stock in October.

We deployed $289 million to retire validus re debt prior to the close of the transaction yesterday.

And we ended the quarter with $3 6 billion apparent liquidity.

During the quarter, we continued to make significant progress on our strategic repositioning as we have further simplified our portfolio, which we've talked about over the past several quarters.

Yesterday, we announced the successful closing of the sale of Validus re to Renaissance <unk> for which we received a total consideration of $3 $3 billion in cash, including a pre close dividend and approximately $275 million and Renaissance III common stock this divestiture streamlines our business model.

Simplifies our portfolio and further reduces our volatility.

Prior to closing the <unk> transaction, we entered into an agreement with <unk> group to provide AIG with protection against any adverse development on the 95% portion about <unk> loss reserves that AIG retained exposure to.

The costs will be included in the gain on sale in the fourth quarter.

And star will provide $400 million of limit for an adverse development cover in excess of carried loss reserves on assumed reinsurance contracts underwritten by Validus re with respect to accident year 2022 and prior.

This ADC limit provides additional protection against downside exposure to reserves in excess of the expected redundancy to our modeled confidence level above the 90 percentile.

Importantly, while we believe this ADC as prudent to mitigate the risk of any future adverse reserve development, we will benefit from any future favorable reserve development.

In August Corbridge entered into a definitive agreement to sell layer healthcare to axa for $650 million Euro which closed on October 31.

Proceeds to corbridge net of purchase price adjustments and deal related expenses will be approximately $730 million.

It was announced that the proceeds will be used for special dividend to corporate shareholders as of November 13.

In September <unk> entered into a definitive agreement to sell the UK life insurance business to Aviva plc for 460 million pounds.

We expect the transaction to close sometime in the second quarter of 2024 subject to regulatory approvals.

We anticipate that the proceeds from this transaction will largely be used for share repurchases subject to market conditions.

Both transaction and streamline the corbridge portfolio and allow the company to focus on its life retirement products and solutions in the United States.

Turning to general insurance gross premiums written were $8 9 billion, a decrease of 1% from prior year quarter.

Net premiums written were $6 5 billion, an increase of 9% from the prior year quarter.

Global commercial grew 6% and global personal grew 16% from the prior year quarter.

North America commercial net premiums written increased 5% in the third quarter.

There are many variables in this quarter and I want to provide more detail.

The key businesses that drove growth were <unk> core business, excluding Lexington programs grew over 25% in the quarter led by wholesale casualty, which grew 33% and wholesale property, which grew 27%.

Gladfelter grew 12% and retail property grew 11%.

In terms of headwinds in 2022.

We made the underwriting decision to non renew two large lexington programs.

This action because we believe that these programs had meaningful cat exposure in peak zones, and we did not believe the appropriate cat loads were reflected in the pricing.

These programs were not the best deployment of capital in order to achieve our targeted risk adjusted returns.

Those non renewals tempered overall growth in Lexington lessened.

Lexington programs net premiums written reduced by 57% in the quarter.

We believe over time, we will replace this business on an individual risk basis is stronger risk adjusted returns. However, it is a headwind in the quarter.

The impact of the net premiums written associated with these two programs was approximately $115 million in the third quarter.

Also offsetting growth in North America, with financial lines, which declined 11%.

For approximately 20% of North America commercial lines net premiums written in the quarter.

In North America financial lines large account public D&O remains competitive as a result of excess capacity driven by new entrants to the market.

Our renewal retention in our primary business remains strong.

Our retentions in our excess business.

Were more challenged new business and our excess book was down year over year as we were very disciplined in the current environment.

Rate reductions remained most prevalent on excess layers, particularly the higher excess layer vertical towers, where it's more commoditized and the most pressure exists on pricing and primary where we are one of the few market leaders rates remained flat to slightly down.

We remain confident in our approach to financial lines, we are a global business with scale focused on underwriting profit over topline growth, which is reflected in the results this quarter.

And international commercial net premiums written grew 7%, primarily driven by property, which was up 13%.

Global specialty, which was up 12% led by energy and Marine and Talbot, which was up 7%.

Global commercial had very strong renewal retention of 87% and its in force portfolio North America was up 200 basis points to 87% and international was up 300 basis points to 88% as a reminder, we calculate renewal retention prior to the impact of rate and exposure change.

His.

And across global commercial we continue to see very strong new business, which was approximately $1 billion in the third quarter.

North America commercial produced new business of $516 million, an increase of 13% year over year or 27% if you exclude financial lines.

This growth was driven by Lexington casualty.

Which saw excellent new business growth of over 90% as well as western World, which grew over 50% reach.

Retail property grew new business by 26% and retail casualty grew new business by 25%.

This was offset by financial lines, where new business contracted by about 30% as a result of our underwriting discipline.

International commercial produced new business of $532 million or 12% growth year over year.

This growth was led by Talbot, new business, which increased almost 50% year over year and global specialty which grew new business by over 40% and it was balanced across the portfolio.

Moving to rate in North America commercial rate increased five 4% in the third quarter or 6% excluding workers' compensation.

Exposure in the quarter added three points, bringing the total pricing change excluding workers' comp to 9%.

Rate increases were driven by Lexington, wholesale, which was up 15%, marking the 18th consecutive quarter of double digit rate increases led by Lexington wholesale property, which was up 28%.

Retail property was up 27% and admitted excess casualty was up 12% financial lines rate was down 8%.

In international commercial rate increased 4% and the exposure increase was 2%.

The rate increase was driven by property, which was up 13%.

Energy, which was up 10% and Talbot, which was up 9%.

Turning to personal insurance net premiums written increased 16% year over year, primarily driven by North America and.

In North America personal net premiums written increased 59%.

Similar to last quarter, the increase was driven by business underwritten on behalf of PCF offset by decreases in travel and warranty.

In the third quarter Aig's net premiums written from Pcs increased by over 100%.

Benefiting from an increase in gross premiums written and a reduction in quota share sessions.

And as expected the lag in earned premium growth continued to dissipate, providing operating leverage and a reduced expense ratio primarily in general operating expenses.

The high and Ultra high net worth business also had significant improvement in the accident year loss ratio benefiting from improved pricing in our admitted business and transitioning more business to the non admitted market.

We expect Tcs to continued to improve its financial performance and provide more operating leverage in the fourth quarter and into 2024.

In international personal net premiums written increased by 3% year over year, driven by growth in personal auto travel and that reflects the rebound post pandemic.

In Japan personal property.

The accident year loss ratio ex cat improved 560 basis points overall, we're pleased with the international personal improvement year over year.

Shifting to combined ratios the general insurance third quarter combined ratio was 95% or 680 basis point improvement from the prior year quarter.

Accident year combined ratio ex cats was 86, 3%.

210 basis point improvement from the prior year quarter.

Global commercial had an outstanding performance with third quarter accident year combined ratio ex cats of 81, 7%, a 130 basis point improvement year over year.

The accident year combined ratio, including Cat was 89, 7%, a 500 basis point improvement from the prior year quarter.

But north America commercial accident year combined ratio ex cats was 83%.

And the international commercial accident year combined ratio ex cats was 79, 7% both of which were exceptional outcomes.

We would like to provide a perspective, both with and without Validus re and crop risk services.

As I said.

The third quarter global commercial accident year combined ratio ex cat was 81, 7% in the calendar year combined ratio was 86, 6%.

Excluding validus re from the third quarter results the global commercial accident year combined ratio would essentially have been flat in the calendar year combined ratio would have improved by slightly over 100 basis points from the third quarter to 85, 4%.

And for the first nine months the global commercial accident year combined ratio ex Cat was 83, 6% and the calendar year combined ratio was 87, 6%.

Excluding crop in Validus re from the nine month period results. The global commercial accident year combined ratio ex cat would have increased by 70 basis points to 84, 3% in the calendar year combined ratio would have increased by 50 basis points to 88, 1%.

Global personal reported third quarter accident year combined ratio ex cats of 99%, a 380 basis point improvement from the prior year quarter due in part to the North America PCM business.

Related to casualty liability and excess casualty market in particular in the United States. The level of narrative has increased over the last several years driven in part by multiple mass tort events as well as rising economic and social inflation.

The latter has been fueled by an exponential increase in third party litigation funding.

Average severity trend increases and a precipitous rise in jury awards following a lull during the pandemic.

Over the past couple of years I've spoken extensively about our portfolio remediation strategy, including where AIG has reduced gross limits since 2018 by one four trillion.

We have established strong underwriting guidelines and strong partnerships with reinsurers to manage both frequency and severity.

We have followed a similar strategy with our casualty portfolio with more of a focus on severity.

When we began the underwriting turnaround in AIG in 2017, we found that the prior strategy in casualty was similar to that in the property business, which was to write large limits with a gross and net risk appetite much greater than what we offer today.

As I've outlined before it was not uncommon to put out significant limits on any individual risk in excess of $100 million net on an occurrence basis.

As we developed an entirely new framework and approach to underwriting it required a change to our underwriting strategy.

Today, our global casualty portfolio represents 12% of our total gross premiums written and 13% of our net premiums written.

The North America segment represented 55% and the international segment represents 45% of that number.

And since North America has been the topic of discussion I will focus on what we have done in that portfolio.

In North America casualty, our gross limit for our excess casualty portfolio, including lead umbrella has decreased by over 50% since 2018.

Our average limit size is also reduced by over 50%.

Average lead attachment points, which protect us from frequency and lower severity losses have more than doubled since 2018.

In terms of gross pricing primary auto in primary general liability rates have increased approximately 200% since 2018 and excess casualty rates have increased over 250% remaining well above loss cost trends.

In addition to the significant investment and underwriting excellence and talent.

We built and executed on our strategic reinsurance program to further mitigate our net exposure and volatility.

Once it was $100 million net exposure for AIG.

Now a maximum net on any one claim a $15 million in international and $11 $5 million in North America.

And then our excess of loss treaties, we have reinstatement limits that exhaust based on extensive modeling done at the 1000 return periods. This adequately protects AIG from vertical exposure with significant limit available in the event there are multiple losses.

Notably the period prior to 2016 is covered by an adverse development cover for U S long tail commercial lines.

We purchased 80% of a 25 billion excess of 25 billion on payments made on or after January one 2016 for business written prior to 2016.

The 25 billion retention was exceeded during the fourth quarter of 2020.

We currently have $9 billion of the total unused recoverable limit left or $7 2 billion at the 80% level.

Conflicting views have emerged in the market on the combination of gross portfolio underwriting with the strategic use of reinsurance there've been comments, particularly recently that the use of reinsurance is not required if youre comfortable with the gross portfolio, we disagree and simply don't support that as a viable strategy for AIG.

We prefer to balance our approach and have developed a strong underwriting culture.

We have dramatically improved over the last five years executing on the fundamentals of disciplined and consistent underwriting being very focused on preempting, the evolving changes in the market and using reinsurance strategically to mitigate unpredictable outcomes.

Building long term strategic relationships with our reinsurance partners for all of our reinsurance needs has been key to repositioning AIG.

Insurers cannot reverse social and economic inflation.

We are in control of how we predict and respond to the impact of these changes to the forward looking landscape, including how we manage our underwriting through coverage provided limits deployed attachment points and pricing.

Yes.

Our business is not immune from social inflation.

But we anticipated it early and we took action.

The consequence is that we're very pleased with our existing portfolio and we're well positioned to be able to prudently take advantage of opportunities that exist in the current marketplace.

Turning to capital management.

We use a balanced framework that remains focused on having ample capital in our insurance company subsidiary to support organic growth in our business.

Continuing share repurchases.

That reduction in line with the lower end of the targets, we provided and dividend increases.

Lastly, we will consider compelling inorganic growth opportunities to meet our strategic objectives should they emerge.

We finished the third quarter with $3 6 billion of available liquidity prior to receiving the proceeds of the sale of Validus re for the special dividend from the sale of Lai of healthcare together, they should contribute approximately another $3 7 billion in the fourth quarter.

Our primary use of proceeds will be on share repurchases.

We plan to accelerate our repurchase activity this quarter and as we enter 2024, and we expect to reduce debt outstanding to further strengthen the balance sheet.

We remain mindful of our leverage is a key consideration with our accelerated share repurchases.

We expect to execute on the current share repurchase authorization of $7 5 billion.

Which have reduced shares outstanding to close to 600 million shares subject to market conditions.

Related to return on common equity.

As we have outlined on our prior calls we remain very focused on delivering a 10% plus RLC post deconsolidation of corbridge.

During the third quarter, we continue to make significant progress on all four components of our path to deliver on this commitment and how we are positioning AIG for the future.

Want to provide a few observations.

In the last 90 days, we've continued to improve our underwriting results on an accident year and calendar year basis.

We made recent leadership changes in general insurance, which have effectively eliminate a management layer from the business and we will continue this process throughout the organization in 2024.

We have strengthened the capital position of insurance company subsidiaries to enable continued profitable growth.

We've moved into the final stages of the operational separation for corbridge.

We have announced and closed several divestitures and have repositioned the portfolio to support our strategy for the future.

We have accelerated the progress we're making on our capital management strategy and have created a strong liquidity position.

The catalyst to achieving our targets remains a deconsolidation of corbridge.

This will allow AIG to simplify our business eliminate duplication by combining our general insurance business and our corporate functions and create a leaner operating model for the future.

Before I turn it over to Sarah I'd like to add a few more details on the closing of the sale of Validus re to Renaissance III.

In January of 2018, AIG announced it was acquiring Validus holdings to positioning for future growth and profitability improvement.

Over the last several years, we reshape validus res portfolio by reducing the catastrophe exposure and certain U S peak zones, while diversifying the business significantly to develop a more balanced portfolio in both property and casualty reinsurance in order to improve profitability.

Validus re posted its first accident year combined ratio below 100% in 2022 and as we look back we are grateful for the hard work determination and perseverance of the team to dramatically improve the quality of the portfolio, particularly year to date in 2023 and it's evident.

And its performance today.

We are very proud of Validus res results and are pleased that the company acquiring Validus re is Renaissance III.

Through Kevin O'donnell, and his leadership team's terrific work Renaissance <unk> has become one of the world's most well respected reinsurers.

We are looking forward to continuing our strong partnership with Renaissance III.

Which will be further enhanced as we become an investor in <unk> capital partner vehicles, allowing us to benefit from their future performance.

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

Thank you Peter this morning, I will provide more detail on Aig's third quarter, including General insurance reserves net investment income life, and retirement results and balance sheet and capital management.

Adjusted after tax income attributable to common shareholders. This quarter was $1 2 billion.

Up 80% from <unk> 22 for an annualized adjusted RSA at eight 5%.

ATI per diluted share was $1 61 of 92%, reflecting the accretive impact of share repurchases over the last year.

The earnings growth resulted from the 82% increase in general insurance adjusted pre tax income to $1 4 billion.

Driven by top line growth improved underwriting results and higher investment income.

It is important to note that while life and retirement also had strong earnings.

Aig's ownership of Corbridge decreased to 65, 6% this quarter compared to 91% before the IPO and therefore, our results include a lower percentage of their consolidated earnings than last year.

Total corporates contributed about $32 million to the $514 million increase in Aig's adjusted after tax income.

Turning to general insurance, Peter summarized our underwriting results, but I want to cover prior year development and reserves in more detail.

In the quarter General insurance prior year development net of reinsurance totaled $139 million favorable including $41 million from the amortization of deferred gain on the adverse development cover.

About $129 million, including the ADC gain resulted from the detailed valuation reviews or <unk> with the balance in other items like catastrophes.

The DVR is covered $34 $1 billion of loss reserves on a pre ADC basis about 70% of the total.

The DVR is of particular note this quarter were for international casualty and financial lines, North America financial lines in North America Workers' compensation, which last year was completed in the second quarter.

In total North America had a 154 million of favorable development, including $39 million from the ADC.

International was $15 million unfavorable.

Consistent with our prior comments casualty bodily injury Securities class actions and medical workers comp trends have been and continue to be more favorable than our reserving assumptions.

We believe that our changes in underwriting standards reduced limits higher attachment points and primary limit tightened terms and conditions and better risk selection are driving the improved experience, particularly in financial lines and casualty. Nevertheless, our philosophy is to react to bad news quickly and to allow time for <unk>.

Verbal trends in recent accident years to mature, particularly given the impact of Covid on recent years there.

Therefore, this quarter's favorable development is generally from older accident years or from short tail lines like property or physical damage claims coming quickly.

In financial lines changes from the <unk> were immaterial.

North America had modest adverse development on an older Lexington architect and engineers book offset by favorability in Canada.

UK financial lines had slight adverse development, reflecting emerged experience on older D&O and professional indemnity claims partially offset by favorable experience in Europe and Japan.

We also reviewed international casualty lines this quarter.

Peter discussed our changes in underwriting limits and reinsurance on a global casualty book.

I would add that we also evaluate economic and social inflation trends as well as our potential exposure to mass towards across the total book and hold reserves to address those items.

This quarter, we had adverse development in UK and European casualty, principally from commercial auto in France, and large loss experience and a few older claims in both the UK and Europe.

Consistent with prior trends the DVR for workers compensation were favorable both of our years covered by the ADC and after.

Finally property lines in personal insurance net favorable development in both North America and international while we had about $23 million of adverse development on prior year catastrophes.

We will complete the balance of annual DVR is next quarter, which cover about $6 billion of reserves on a number of smaller rooms.

Net investment income also contributed to earnings growth in the quarter, driven principally by higher reinvestment rates on fixed maturities in loans.

The average new money yield on fixed maturities in loans was 588% this quarter about 145 basis points above the yield on sales and maturities and it was about $130 million 150 basis points higher in general insurance and life and retirement respectively.

Year to date, the total new money yield is about 202 basis points higher than sales and maturities.

Portfolio yield in general insurance increased nine basis points sequentially, and 88 basis points over the last year with net investment income growth of 30%.

LNR investment income rose, 23% and the portfolio yield improved nine basis points and 63 basis points respectively.

Based on the current treasury yield curve, we expect continued pickup in portfolio yields, particularly in LNR, given the longer duration of the portfolio.

Alternative investment income totaled $26 million for an annualized return of about 1%.

Better than the losses last year, but below our long term experience and outlook and down sequentially.

Private equity returns are the principal driver of sequential decline in alternative returns this year.

As we have reduced our exposure to hedge funds over the last year.

Private equity is reported on a one quarter lag based on when we received the funds financial reports. So this quarter's financial results reflect second quarter markets.

Our investment portfolios have strong credit performance and remains well diversified and highly rated we continue to monitor our commercial real estate closely debt service coverage ratios are strong including in the office sector. The primary impact has been on loan to value ratios and real estate equity valuations rather than delinquencies or defaults.

We continue to work on near term maturities and almost all 2023 scheduled maturities have been addressed.

Life and retirement once again delivered strong results in the third quarter.

Adjusted pre tax income was $971 million up 24% year over year, driven by continued investment spread expansion and strong sales, particularly in fixed index annuities.

Underwriting margins overall remain attractive and on a sequential quarter basis fee income and investment spreads improved.

During the quarter the annual actuarial assumptions update was completed resulting in a modest $22 million increase in API, mostly in the life insurance segment compared to a $29 million increase last year.

Individual retirement, apta increased $195 million or 52% over the prior year quarter from base spread expansion and general account product growth.

The fixed annuity surrender rate increased sequentially from 15, 9% to 17, 7% this quarter as operations caught up on our backlog of surrender requests from earlier in the year.

On a monthly basis surrenders peaked early in the quarter and declined sequentially. Each month with continued improvement in October.

Group retirement, <unk> was flat year over year as higher fee income and alternative investment income were offset by lower other yield enhancement income and higher general operating expenses or <unk>.

Net outflows included one large $1 billion plan, which was mostly in mutual funds and therefore, it was not material to earnings.

Life insurance APG was also flat year over year, primarily due to lower policy fees and lower favorable impact from the annual assumption update partially offset by higher net investment income.

Institutional markets atti decreased $8 million or 10% due to less favorable mortality experience.

Sales increased 19% supported by record production of $1 9 billion.

Partially offset by lower PRT sales, which are highly variable quarter to quarter.

Turning to other operations third quarter, adjusted pre tax loss improved by $149 million.

Driven by lower corporate and other GLA and higher short term investment income.

In addition, third quarter 2022 had investment losses on our legacy portfolio that was sold in <unk> 'twenty two.

Corporate <unk> was $243 million and included $68 million for corbridge, excluding corbridge AIG corporate G&A decreased $56 million from the prior year.

We remain on track to reduce 2023, corporate <unk> by at least $100 million.

Including a higher allocation to general insurance that has not had a material impact on the expense ratio due to expense discipline across the company.

Moving to the balance sheet third quarter 2023 estimated risk based capital ratios remain above our target ranges. The general insurance U S pool RBC is in the high four hundreds while life and retirement is about it's 400% target.

At September 30th consolidated debt and preferred stock to total capital, excluding <unk> was 25, 9%, including $9 $4 billion of corporate debt.

Our approach to capital management is unchanged, we will continue to balance share repurchases and debt reduction while also focusing on increasing common stock dividends.

As Peter indicated from the Validus and land sales, we expect about $3 7 billion of additional parent liquidity in the fourth quarter, we have significant financial flexibility, which we intend to use for both additional share repurchases and debt reduction.

Based on current average daily trading volumes, we expect to be able to repurchase about $1 5 billion of common stock a quarter or $500 million a month.

Which we will begin when the market window opens after earnings.

We expect to continue at this rate into 2024, depending on excess parent liquidity levels, including future corporate sales proceeds and general insurance dividends.

In the fourth quarter, we also plan to accelerate debt repayment to right size, our debt stack for our target be consolidated leverage ratio.

Turning to our RSA target, we remain laser focused and are making progress on achieving the 10% plus our oce post deconsolidation.

Year to date annualized adjusted RSC for AIG was eight 8% and 12.0 present in general insurance, and 11, 4% and life and retirement.

Last quarter I provided a pro forma AIG shareholders equity Xa OCI, excluding core average of about $40 billion, including deferred tax assets from the financial crisis era net operating losses.

That's the capital supporting our general insurance business and parent operations today, excluding our state and coverage.

With the sale of Validus re and the redeployment of proceeds into share repurchases and debt reduction.

Pro forma estimate of AIG equity, excluding corbridge is about $37 billion, including $4 billion of deferred tax assets or $33 billion of adjusted shareholders equity, which is the number we use for calculating adjusted our CE.

Considering this equity level and our plans to simplify aig's business and operational structure and to drive more predictable and sustainable profitability. We are confident that we will achieve our 10% plus adjusted RFC equal.

We look forward to continuing to update you on our progress.

With that I will turn the call back over to Peter.

Thanks, Hey, Bryan Michelle we're ready for questions.

Thank you if you'd like to ask a question. Please press star one one.

If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Our first question comes from Meyer Shields with <unk>. Your line is open.

Great Thanks, and good morning.

One question to start on reserves I guess, what's the process for ensuring that.

The adverse development in international commercial doesn't actually reflect.

Social inflation problem and that is individual cases.

Hi, Good morning. Thanks for the question Simon do you want to cover that just a quick overview.

Mary mentioned the.

International and some of the inflation impact from reserves, yes.

Yes, certainly and let me first start by explaining what the DVR processes. So DVR is a once a year deep dive into our reserves.

But each quarter, we do an actual versus expected analysis.

So we do make adjustments to reserves on lines of business during the ordinary part of the year, but the deep deep dive is where we really drill down into the lines in great detail.

This quarter as I noted, we had international casualty.

Relevant that you see is related to very specific books or not.

I'm, sorry, I'm getting a little feedback on the line here.

So I don't know Meir, maybe you need to mute.

And international commercial lines is very much related to specific cases in judgments around settlements and as I said I would also note and Peter's comment. These are generally from older accident years, where we are exposed to much larger limits. So therefore, when you have a particular claim that goes against you they do.

Are lumpy and they tend to be large so what I would just say again is that we look at our book consistently during the course of the year do a deep dive once a year and then make some assessments based on specific facts and circumstances.

Thanks, Deborah Mark do you have another question, yes, just a quick one I know, there's a lot of moving parts in North America personal hoping you could give us some sense of maybe true underlying underwriting results and the path to profitability in that segment.

Great. Thank you.

As we've talked about before it's a business in transition.

We're not pleased with the overall printed results, but we had outlined in the past that it's complicated.

23 would be a transition year, particularly with Tcs, which we see a lot of net premium written coming in each quarter.

<unk> will follow and so we should have some significant benefit on the ratios as we fully earn in.

The name over the coming quarters.

We look at fourth quarter 2023, and.

And then to 2024, we will see the mix of business change and so therefore the overall.

And acquisition expenses should come down we would see the accident year loss ratio ex cat slightly go up just because of the mix.

What PCF is underwriting.

We did have some one time items I won't go into in the quarter that were headwinds in the travel and warranty business.

But those businesses are going to have to contribute more as we get into 2024 and we're looking at the entire business model in order to improve their financial results will be recognized.

The overall segment needs to improve we believe we have.

Sort of a business strategic alternatives in place and we're going to be executing them and again, it's just a choppy year as we make that transition.

Okay. That's helpful. Thank you so much.

Next question.

Thank you. Our next question comes from Gary Ransom with Dowling <unk> partners. Your line is open.

Yes, good morning.

Wanted to ask about financial lines on the one hand, you noted that rates are going down in that segment and on the other hand, you are talking about social inflation.

Just generally it seems to be is worrisome as ever.

I know youre reserves held up this quarter, but.

It's like we're in a soft market for those financial lines and I wondered if you could add some more color on how you're managing through that portion of the cycle sure business.

Yeah, Thanks, Gary for the question.

I'll have Dave make some specific comments when we talk about the headwinds in financial lines and again, Dave will go into it.

Primarily North America, and it's primarily access.

Done a tremendous job over the past.

Years to reposition the business.

And not only with the underwriting, but also with cumulative rate and so we still think theres margin still think our scale.

And that balance across the world as a competitive advantage.

When we talk about some of the challenges financial lines, It's really specific to North America, Dave do you want to provide some context and a little bit more detail. Please.

Yes, yes, thank you Peter and thank you Gary.

This is obviously.

Obviously, a business, but I've got a lot of scar tissue I know for a lot of 40% to 40 years and their son and I, sometimes think of my career credibility tied into fixing this book.

Very confident with where we have positioned the book Okay.

Yes.

We've taken a cautious approach to the large account public company D&O business, and particularly excess Gary that you've referred to so we are aware of the consequences of chasing volume. Okay. We've seen companies go close to the sudden they burn out.

That's our sophistication so.

The lower jumping here private public.

Public company D&O the market the private.

The primary market is frankly, a stable market, okay, it's holding up well cumulative rate increases even though they went up 120% from the 18% to 21 year there are trending around 85% today and they're holding okay. This is this is going to be about a story about access and.

I do want to frame this that in the primary market. There are a couple of key points that are also holding and Thats retentions are holding up very nicely.

There hasnt been an erosion in the.

Self insured retention and our clients are keeping and we look at that is it.

Sort of an active hedge against legal cost inflation and then the other fact that I've always been worried about is the arms race back to limits and this industry did a great job and I believe there.

With respect for for this volatility by taking $25 million limits down to tens and fifteens down to five so even today our portfolio is in the 80% to 90% range of those limits on a primary basis and therefore, the arms race to increasing.

Women's switches often led by.

Those those who may not understand.

The volatility that has not happened okay. So that's a win for the primary.

I'll call out the excess because the battles and the competition in this market are our classic. Okay. These are tranches above $50 million, it's a commodity we're seeing more competition there and we are.

We're going to do is we're going to do what we've been doing reducing our limits, reducing our policy count and our renewal retention right now is actually running 11 point slower than what would be normal and.

And our standard market.

And we're going to continue that way not only on a policy count basis.

But in aggregate and aggregate patients.

Two things I'd just call out.

Everybody knows that I've lived in this business for a bit.

I call out the claim environment in the market the market may be miss timing the pricing of excess layers in Canada. The plaintiff's bar has circled back to large accounts.

Securities Class actions are actually up this year and.

And looking more like the 16% to 19 cohort years, which are problematic for the industry versus the 2022 years. So.

This one to be concerned about because that vertical <unk> of loss well will actually affect the excess towers that are are not going to be making money at 8000 amounts. So this environment is not conducive.

To be putting out limits access at those layers and maybe the more important thing is about our AIG global okay.

It is a formidable asset and we had the heightened heightened scrutiny on the North American book, we're confident around what that looks like but the international book as a as a franchise that you could not duplicate in generations, it's performed better than the U S. It's actually loss.

I'm sure that in the U S book, It actually represents 60% of our total volume in the world. It has more geographic spread, particularly in Europe and Asia Pac.

And it actually catches more private company business SME business.

And middle market cyber business than you might think in North America, so and other than some of the London subscription pricing.

Missing pressure there has been de Minimis and and in fact, our rates are holding up better than 2020 frame. So I always feel like when I got here.

I didn't understand the impact and the power, but the AIG global franchise is a patient.

Incredible asset and.

And it also is one that we have coordinated better to make sure that any sort of U S exposures are controlled.

Collectively by both of Us so and some special asset.

<unk> built over two generations, we like what it is.

Like the portfolio today.

And.

There has been just three five years of work to frame. This book to where we all trust and we trust. The recent years for their performance. Okay kicking back to you Peter I know I went long.

Thank you David very thorough I appreciate it.

Thank you very thorough answer I'm good I'm good thank.

Thank you thanks.

Next question please.

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

Hi, good morning.

First one I have is on sort of capital management related to corporate separation.

Appreciate it.

There is volume constraints and it's good to have.

Some guidance around how much capacity you can do in terms of buybacks this quarter.

I did want to probe a bit on to what degree.

If it all of that considers further slowdown our core bridge and sort of further.

Special dividends coming out of <unk> and so forth.

Thank you.

The math would tell us.

You could potentially do more.

The $1 5 billion a quarter, particularly for nextera over four quarters.

Yes, I am just a little sensitive to it because it affects sort of accretion dilution and just the lag and what to expect so I want to make sure we have appropriate expectations around.

The timing of that share count reduction and so forth any help I appreciate it.

Yes, thanks very much for the question I mean, we tried to provide between sabre on script.

In my prepared remarks.

A lot of detail on capital management and also.

The additional liquidity, we're going to have from the special dividend.

Validus re disposition and overall, how we intend to.

Use those proceeds and it remains the same as we want to make sure that we provide.

Apple.

Capital in our subsidiaries to continue to drive growth.

We still think there is great opportunities for us in the businesses that we're in.

To drive topline growth and continue to drive profit growth and more margin.

And that is our primary focus we've also given guidance in terms of the share count and clearly with the seven $5 billion of.

Share authorization and now with the liquidity that we've outlined we have.

A path towards that lower end of the $600 million and so when we think about the next several quarters.

Certainly that's going to be the priority sabre and I alluded to the fact that we still want to clean up a little bit of debt.

And make sure that we're at the lower end of the ratios, but also reflecting that buying back shares is going to have an impact on your leverage.

And making certain that we are.

<unk>.

Thoughtful prudent and getting ahead of that.

In terms of the corbridge sell down I mean, we've been very.

<unk>.

Certainly we would like to do something in the fourth quarter. We continue to look at all the different alternatives in terms of size.

And then how we can do it.

It'll be a priority for us to focus on.

When we conclude this call and start to focus on to into next week I mean corbridge has done a terrific job.

Setting itself up as a public company and Theyre ready for deconsolidation in terms of their operations, but we want to make certain that we are very thoughtful in the current environment.

And again, we will use those proceeds to continue to accelerate.

We've outlined on the capital management I would expect as we go.

Do a secondary.

When we get on future calls.

Update and refresh.

Some of the capital structure and also.

Our guidance to see if we if we need to revise it but I think thats, probably all I can give you at this point.

Yeah. That's helpful. Thank you for that.

Second question I had is on the.

I guess at the operating company level on the remain co general insurance side of things.

Where do you see those metrics over time, I mean, one of the things that ive looked at as just decomposing the ROE in the underwriting leverage itself seems lower at AIG, which made sense in the world as you guys had more volatility.

But as you sort of expressed in your opening comments and as you guys are sort of proven out the volatility has significantly reduced so where can that go to overtime.

What are the right metrics for us to look at it that RBC your premium to surplus any any help on thinking through how much more business you could write on the on the equity you have.

Yes, well, we could rise significantly more business based on the capital we have in our subsidiaries today.

We have a lot of moving pieces I mean, certainly.

Selling validus re gives us a lot more flexibility.

In terms of how we position the portfolio for for next year and so I'll give you a couple of examples of that is that.

We.

Underwrite property business, where we pick up cat across the world, whether it's Japan, and our international business through Lexington through Talbot through our retail in North America, but we always have to be very cautious in terms of the overall volatility in terms of how it correlated with with Validus re and including our reinsurance purchasing.

We had certain retention that might be lower than what our risk tolerance would assume within.

North America and international we bought IL <unk> that benefited the group and so like as we think about how we reposition the portfolio I believe we have cigna.

A significant amount of aggregate, we have a significant amount of capital we have businesses that are.

<unk> to propel growth.

And want to focus on that now maybe the first part of your question is what type of leverage or how can you improvement. We recognize we have an expense issue I mean, when we look at the overall combination of our corporate expenses plus the expenses that sit in the business, yeah, Theres a little bit of a mix issue that when you look at some of the personal insurance, which are great businesses.

International May have a little bit more acquisition, and Joey but by and large we need to get expenses out.

That's a focus that will be the leverage in terms of contributing to ROE and also getting our future state business.

That is leaner and.

That does not have a duplication across the world. So that's the work we've been doing.

This year, we will be positioned.

Deconsolidation to start implementing that operating model, but I think the leverage is we have enough capital to grow and will continue to grow the top line, where we like the risk adjusted returns and less volatility because we don't have a reinsurance business anymore. So we can do things a little bit differently on the primary side and we know we have expenses that need to get out and we're going to get them out and that's going to drive us.

The 10% LLC.

Thank you.

Okay, one more question.

Thank you. Our next question comes from Michael Zaremski with BMO. Your line is open.

Hey, great good morning.

My question is kind of on at some point.

On already.

Portfolio transformation strategy, which has obviously been successful over the past five years or so.

Peter you use the keyboard trillions, you said one four trillion dollar.

Limit reductions so just curious.

I think David gave us a flavor of this answer but does that is there a way to frame what percentage limit reduction youre average.

Average policy as it sounded like David said, it's over 50% in some of those financial lines and just related like how is that with aging outlier previously and you've moved towards the market or how has this changed your competitive position in the marketplace.

Yes, I think you recognize how we were able to reduce volatility.

When you have I have to even pause when I have to write out trillium, because it's a big number and one four trillion dollars of limit I don't think thats been done Enernoc business before and then reposition our portfolio to drive significant profitability improvement that absolutely was an outlier.

Gross limit deployment of net limit deployment was significant relative to any of its competitors and in order to.

The type of predictable results, we've been able to produce over the past couple of years when you see the relative.

Improvement as well as absolute improvement.

We are really proud of that.

Take out the volatility, which was the outsize limits not only from a growth perspective, and we recognize that while we talk about it as that.

Yes, when you buy a reinsurance it's strategic it matters, but it's not what's driving the results. So John the results as the gross underwriting and the overall reduction everywhere you look property casualty financial lines everything is 50% plus a reduction of gross limits and then you add on reinsurance to tamper volatility that's how we've been able to position the portfolio to add.

Not only significantly improved results less volatility its also very sustainable and we believe that there's opportunities for further impairment.

Okay.

Great and my last.

Yes, if I may is on there's been a.

A lot of leadership changes over the past eight years and quarters I.

I think sabre I used the term simplify structure I guess any color you can offer on are we.

Is the structure.

Simplify wireless based bonding four or nine or any any any comments would be helpful. Thank you.

Sure.

We've had a lot of change over the last five years and when I look at our overall attrition it's at all time low.

We've had a couple of senior executives that we brought into position the organization for the future.

We believe that the underwriting structure that we put forward is going to be with us for a couple of years, that's going to drive the performance that we've become accustomed to.

We will continue to bring in skill sets in the organization that supplement what we already have in order to position us for the future. So I'm really very pleased as I said, we have very low attrition.

Continued to upgrade talent across the organization and.

People want to come work here, which is a really positive attribute of the organization and how we position it for the future.

So thank you I do have.

One closing remark.

First of all I'm very proud.

And like to thank all of our colleagues for their efforts and all that they've done to progress our strategic plan to deliver consistently strong financial results.

Very proud of them.

I would like to say a few words about our former Chief financial Officer Shayne put Simons.

Last away on Friday October 27, Shanghai, a brilliant career he was highly thought of and the global business community and quickly earn the trust and respect of the insurance industry, which is not easy to do.

He was a cherished colleague here at AIG Chamberlain energy integrity, and a very positive attitude that was both contagious and inspiring.

He is a big reason why AIG is where it is today Shane was a great friend to many of US and we're so grateful for all that he did for AIG, our stakeholders and our colleagues.

Thank you and have a great day.

Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.

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Q3 2023 American International Group Inc Earnings Call

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