Q2 2024 American International Group Inc Earnings Call
As Quentin mentioned at the beginning of the call, all figures I will reference today will be on a comparable basis excluding the impact of ballotistry and crop risk services, unless otherwise noted, in order to provide a clear view of our underlying performance.
Unknown Executive: Unless otherwise noted, in order to provide a clear view of our underlying performance, representing a 38% increase in earnings per share year over year, a slide increase of 10 basis points from the prior year. The action year combined ratio excluding catastrophes was 87.6%, a 170 basis point improvement from the prior year.
Adjusted after-tax income with $775 million, or $1.16 per diluted share, representing a 38% increase in earnings per share year-over-year.
Driven by strong organic growth, a continuation of our very strong underwriting performance, ongoing expense discipline, volatility containment, and a decrease in shares outstanding.
Speaker Change: General Insurance net premiums written grew 7% led by global commercial which grew over 8%.
Underwriting income was $430 million. The underlying underwriting income, excluding catastrophes in prior year development, improved $110 million, or 17% year-over-year. The calendar year combined ratio is 92.5%, a slight increase of 10 basis points from the prior year.
The action year combined ratio excluding catastrophes was 87.6%, a 170 basis point improvement from the prior year.
Speaker Change: The CAT loss ratio was 5.7%, or $325 million of total catastrophe-related losses.
Speaker Change: Consolidated net investment income on an adjusted pre-tax income basis was $884 million, a 14% increase year-over-year.
Peter Zaffino: We ended the second quarter with a total debt to total capital ratio of 18%, including ALCI, and we have strong parent liquidity of $5.3 billion. Overall, I'm very pleased with our ability to continue to deliver outstanding financial performance. And I'm equally pleased with the progress we're making on multiple strategic initiatives. She will explain the impact on our capital structure, including shareholders' equity, as well as details on the GAAP accounting implications on our financial.
Speaker Change: discuss our discipline execution of our capital management strategy, and provide an update on AIGnext.
Peter Zaffino: Before I go further, I want to take a moment to comment on the deconsolidation of Corbridge, which marked a major milestone for both AIG and Corbridge, significant accomplishments along the way, and the rationale behind this pivotal decision for AI. In October of 2020, we announced our intention to separate.
Speaker Change: At the height of the pandemic in 2020, we undertook a detailed analysis to explore strategic options to maximize value for AIG shareholders, including evaluating whether to separate our life and retirement business, which would eventually become CoreBridge, from AIG.
Unknown Executive: In July of 2021, AIG announced that Blackstone Group would become an anchor investor in the new standalone company with its acquisition of 9.9% of Corbera. Corporate also entered into a long-term strategic asset management relationship with Blackstone to manage up to 92 and a half billion dollars of assets under management over the subsequent six years, at the end of March of 2022. During 2023, we executed three marketed deals reducing our overall ownership to 52% by year end, for Accounting, which is another important strategic step in positioning AIG for the future to further simplify our portfolio.
Speaker Change: These sales generated over $1.2 billion of proceeds for Corbridge investors.
Speaker Change: In May of 2024, AIG announced it would sell 122 million shares of CoreBridge.
Speaker Change: representing an approximately 20% stake in the company to Nippon Life Insurance Company, one of the most respected life insurance companies in the world, subject to customary regulatory approvals and closing conditions.
Speaker Change: We remain committed to fully selling down a remaining ownership stake in Corbridge over time, subject to market conditions and other considerations. It's been quite a journey, and we have accomplished a tremendous amount.
Speaker Change: Now, let's turn to the travel business. During the quarter, we also announced the sale of our global individual personal travel insurance and assistance business
Unknown Executive: The annual net premiums written for travel are approximately $750 million, most of which are reported under North America Personal Insurance to become our excess and surplus lines distribution partner for high and ultra-high net worth markets, enable multiple points of distribution, and eventually attract more capital resources for the MGU, all while continuing to drive exceptional value for high net worth clients as we grow the business. AIG will provide exclusive ENS paper in all 50 states through Marble Shore Specialty Insurance Company, subject to regulatory approvals.
Speaker Change: The annual net premiums written for travel are approximately $750 million, most of which are reported under North America Personal Insurance.
Speaker Change: The sale is expected to close by the end of 2024, subject to customary regulatory approvals and closing conditions. And last week, we announced another significant transaction involving our high net worth business.
Speaker Change: We've done this through a series of strategic actions, including the most recent announcement about entering into a strategic relationship with Ryan's specialty.
Speaker Change: As we previously communicated, our plan for the portfolio has been to establish an MGU with appropriate infrastructure and core foundational capabilities.
Speaker Change: This progress reflects the momentum we've created with expanded capabilities and broader partnerships.
Unknown Executive: Now turning to general insurance results, in North America, commercial net premiums written grew 10%. In other businesses, retail casualty new business grew over 40%, led by our risk management business and excess casualty. This growth was led by Global Specialty, which had 17% new business growth, led by Energy and Marine. International retention was 89%.
Speaker Change: Net premiums written for the quarter were $6.9 billion, a 7% increase from the prior year, with 8% growth from global commercial and 5% growth from global personal.
Speaker Change: Retail casualty grew 11%, with 21% growth in our risk management business, and we had 16% growth in excess casualty. And captive solutions grew 30%, driven by new business.
Speaker Change: In international commercial, net premiums written grew 6%, global specialty grew 8%, led by 18% growth in energy, TALBA grew 12%, and retail property grew 11%.
Speaker Change: In the second quarter, Global Commercial produced record new business of nearly $1.3 billion, which is an 18% increase from the prior year quarter.
Speaker Change: North America Commercial produced new business of $753 million in the quarter, an increase of 26% year over year, and an increase of over 60% from the prior quarter.
Speaker Change: Lexington also achieved a significant milestone with over $1 billion of gross premiums written this quarter, a 16% increase from the prior year quarter.
Speaker Change: International Commercial produced new business of $522 million for the quarter, an increase of 9% year over year.
Speaker Change: Casualty which had over 30% growth and property which had over 10% growth.
Speaker Change: In addition, global commercial had very strong renewal retention. International retention was 89% and North America retention was 87%.
Unknown Executive: And North America retention was 87%. International personal net premiums written increased by 4% year over year, driven by growth in personal auto and accident health new business. Shifting to the combined ratio, as I noted earlier, the second quarter general insurance accident year combined ratio, excluding catastrophes, was 87.6%, a 170 basis point improvement year over year, driven by a 140 basis point improvement in the expense. North America Personal improved its accident year combined ratio excluding catastrophes to 101.8%, a 530 basis point improvement. The outlook for the second half of 2024, particularly with respect to natural catastrophes, is uncertain.
Speaker Change: International personal net premium has increased by 4% year-over-year driven by growth in personal auto and accident health new business.
Speaker Change: Shifting to the combined ratio, as I noted earlier, the second quarter general insurance accident year combined ratio, excluding catastrophes, was 87.6%, a 170 basis point improvement year over year, driven by 140 basis point improvement in the expense ratio.
Speaker Change: In global commercial, the second quarter accident year combined ratio, excluding catastrophes, was 83.5%, a 180 basis point improvement.
Speaker Change: North America Personal improved its accident-year combined ratio, excluding catastrophes, to 101.8%, a 530 basis point improvement.
Speaker Change: International Personal improved its accident year combined ratio excluding catastrophes by 50 basis points and 94.8% driven by improvements in the expense ratio.
Speaker Change: As we have previously discussed, we purchased the vast majority of our treaty reinsurance at January 1. However, approximately 20% of our overall core reinsurance purchasing occurs in the second quarter.
Speaker Change: The outlook for the second half of 2024, particularly with respect to natural catastrophes, is uncertain.
Speaker Change: While there was a lot of positive sentiment across the industry following modest natural cat loss activity in the first quarter, I've learned over my career to wait until the wind and typhoon seasons are over before declaring how the year will be impacted by natural disasters. It's simply too unpredictable.
Speaker Change: When reviewing capacity in the market, it's important to analyze the available capacity from the rated market and the alternative capital market.
Unknown Executive: On average, they moved attachment points significantly higher to higher return periods, and they restricted coverage mostly to named persons. If you were to look at the complementary alternative capital market, it has approximately $110 billion of estimated capital deployed, and in many ways, more stated available capital in any individual year over the prior 10 years. However, you need to review what makes up that $110 billion to appreciate the true availability for REAN.
Speaker Change: We're all well aware of what happened with Raider reinsurers in 2022. On average, they moved attachment points significantly higher, to higher return periods, and they restricted coverage mostly to named perils.
Speaker Change: If you were to look at the complementary alternative capital market, it has approximately $110 billion of estimated capital deployed, and in many ways, more stated available capital in any individual year over the prior 10 years.
Speaker Change: However, you need to review what makes up that $110 billion to appreciate the true availability for reinsurance.
Unknown Executive: The cap bond market and the ILW market make up approximately 50% of the alternative capital market, the highest nominal amount of any time in history. The market is deploying 90% of the collateralized limit as occurrence reinsurance or occurrence retro, leaving less than 10% of the remaining collateralized reinsurance available for aggregate. Why don't I outline this level of detail?
Speaker Change: The cap bond market and ILW market make up approximately 50% of the alternative capital market, the highest nominal amount of any time in history.
Speaker Change: The market is deploying 90% of the collateralized limit as occurrence reinsurance or occurrence retro, leaving less than 10% of the remaining collateralized reinsurance available for aggregate covers.
Unknown Executive: This purchase protects us from the potential frequency of CATs and allows us to prudently manage volatility. When examining occurrence attachment points across the world from 2022 to 2024, which is another very good measurement, AIG has maintained or reduced its attachment points, making it the lowest amongst our peer groups, which has provided AIG with maximum flexibility. To provide context on the magnitude of what we accomplished, here are some key highlights.
Speaker Change: This purchase protects us from the potential frequency of CAT and allows us to prudently manage volatility. And again, based on my experience, once insurers give up lower occurrence or aggregate attachment points, you simply do not get them back.
Speaker Change: For the balance of 2024, we have approximately $95 million remaining on our international aggregate cover, excluding Japan, and $270 million on our North America aggregate cover, excluding wind and quake.
Speaker Change: This is well within our established risk appetite and believe we remain well protected against both the frequency and severity of CAT events.
Speaker Change: Reinsurance premiums are well embedded in our original pricing, and our portfolio for properties performing exceptionally well.
Speaker Change: Now I will provide a high-level summary of our capital management strategy and the milestones we've accomplished.
Speaker Change: We have deployed over $30 billion in cash towards that capital management strategy over the last three years, which has provided AIG with maximum flexibility.
Speaker Change: To provide context on the magnitude of what we accomplished, there are some key highlights.
Unknown Executive: In 2021, AIG had greater than 850 million shares outstanding and approximately $25 billion of outstanding debt and preferred stock. Using current liquidity and proceeds generated from divestitures and earnings, over the past three years, we repurchased over $13.5 billion of shares, reducing our overall share count by over 200 million shares, or approximately 25%. We have less than 650 million shares outstanding. We have increased the dividend by more than 10% in each of the last two consecutive years.
Speaker Change: In 2021, AIG had greater than 850 million shares outstanding and approximately $25 billion of outstanding debt and preferred stock.
Speaker Change: Using current liquidity and proceeds generated from divestitures and earnings, over the past three years, we repurchased over $13.5 billion of shares, reducing our overall share count by over 200 million shares, or approximately 25%.
Speaker Change: We have less than 650 million shares outstanding.
Speaker Change: representing a total of 10 billion dollars of share repurchases over the course of 2024 and 2025 subject to market conditions.
Speaker Change: Since 2021, we've paid approximately $3 billion of shareholder dividends.
Unknown Executive: Additionally, we reduced AIG's debt outstanding from $25 billion to $9.8 billion and have achieved our target debt to capital leverage ratio range of 15% to 20%, with a second quarter leverage of 18% versus 27% three years ago. Our insurance company subsidiaries are in a very strong capital position with capital ratios above target ranges, which will enable us to continue to grow profitably without having to contribute additional capital. We ended the second quarter with $5.3 billion of parent liquidity. We're weaving the company together to operate seamlessly as one cohesive organization across underwriting, claims, and all of our functional areas. Skills and Capabilities to Compete in the Future
Speaker Change: with a second quarter leverage of 18% versus 27% three years ago.
Speaker Change: Our insurance company subsidiaries are in a very strong capital position with capital ratios above target ranges Which will enable us to continue to grow profitably without having to contribute additional capital
Speaker Change: We ended the second quarter with $5.3 billion of parent liquidity, and we continue to explore compelling and strategic inorganic opportunities that are complementary to our current business.
Speaker Change: As part of positioning AIG for the future, over the past several years we've been on a journey to simplify AIG.
Unknown Executive: These efforts, including AIG 200, have resulted in a reduction of our expense base of approximately $1.5 billion since 2018, while investing for the future. For example, over the last two years, we've invested approximately $300 million in data, digital workflow, AI, and talent to accelerate our progress. Also, at the beginning of 2024, we formally launched AIG Next to further accelerate the realization of additional operational efficiencies. Expenses not defined as parent company costs will be fully embedded within the general insurance results, or they'll be redundant.
Speaker Change: For example, over the last two years, we've invested approximately $300 million in data, digital workflow, AI, and talent to accelerate our progress.
Speaker Change: Also, at the beginning of 2024, we formally launched AIGnext to further accelerate the realization of additional operational efficiencies.
Speaker Change: As part of the AIG Next program, we're redefining our existing retained parent costs to reflect only expenses related to being a global regulated public company, such as costs related to corporate governance, enterprise risk management, and audit.
Speaker Change: Our objective is to decrease retained parent costs to $325 to $350 million, or 1 to 1.5% of net premiums earned going forward.
Speaker Change: Expenses not defined as parent company costs will be fully embedded within the general insurance results or they'll be redundant.
Speaker Change: All the factors being equal, we would expect our full year 2025 calendar year combined ratio to be the same or lower than the full year 2023 metric on a comparable basis as a result of the actions were taken as part of AIG Next.
Speaker Change: We originally provided guidance that we would reach the combined ratio as the exit run rate at the end of 2025, and we now believe we can achieve it in the 2025 calendar year.
Unknown Executive: Additionally, while I've not spoken in detail about AI in the past, we've been making substantial progress, and I want to provide a high-level overview. AIG is advancing its data and digital strategy using artificial intelligence, large language models, and data ingestion applications with the objective of increasing underwriting efficiency and augmenting execution capabilities, where each one is integral and connected, through the Automation of Manual Processing. Underpinning this work is a robust governance framework designed Underwriting Efficiency and Underwriting Management as we build our agentic ecosystem.
Speaker Change: AIG is advancing its data and digital strategy using artificial intelligence, large language models, and data ingestion applications with the objective of increasing underwriting efficiency and augmenting execution capabilities.
Speaker Change: This will drive more accurate, informed decisions by leveraging better data through foundational sources such as broker and agent submissions, and supplemented with validated sources of additional third-party data.
Speaker Change: We will then combine this enhanced capability with advanced modeling and amplified compute capabilities.
Speaker Change: Underpinning this work is a robust governance framework designed to keep pace with the rapidly evolving global AI regulatory landscape.
Speaker Change: I will discuss two areas of focus, underwriting efficiency and underwriting management.
Speaker Change: by which submissions are automatically filtered through real-time underwriting guidelines, allowing underwriters more capacity and the ability to assess many more submissions that meet our defined underwriting criteria, objectives, and risk appetite.
Speaker Change: In underwriting management, we're dynamically managing the review of submission data.
Speaker Change: with a disciplined application of underwriting guidelines and portfolio objectives.
Speaker Change: allowing underwriting leadership to more deeply and accurately analyze market conditions and enabling dynamic adjustments to underwriting guidelines, pricing, and limit deployment.
Unknown Executive: This includes the ability to support the expansion of generative AI capabilities for scalability globally across our platform while keeping the underwriter at the center of the decision. In summary, I'm very pleased with our performance in the second quarter and what we've accomplished not only during the quarter but over the past several years to prepare AIG for a bright future. I will begin with Corbridge-related activity this quarter and the accounting treatment of AIG's financial... A few key dates to outline. On May 16th, we announced the agreement with Nippon Life.
Speaker Change: This is just a glimpse into the significant work we've been doing to use generative AI and large language models as part of our overall data and digital strategy. We'll continue to advance these efforts over the remainder of this year and as we enter 2025.
Speaker Change: In summary, I'm very pleased with our performance in the second quarter and what we've accomplished not only during the quarter but over the past several years to prepare AIG for a bright future.
Speaker Change: With that, I'll turn the call over to Sabra.
Unknown Executive: Because that sale could close within 12 months of the announcement and reduce our ownership to well below 50 percent, held-for sale accounting, and the classification of Corbridge as discontinued operations, were triggered for accounting. Health or sale accounting stipulates that when you reach an agreement to sell a business, its financials must be recast for the current period, with assets and liabilities each classified in one line on both sides of the balance sheet.
Sabra: I will begin with Corbridge-related activity this quarter and the accounting treatment on AIG's financials.
Sabra: A few key dates to outline. On May 16th, we announced the agreement with Nippon Life. Because that sale could close within 12 months of the announcement and reduce our ownership to well below 50%, held-for-sale accounting and the classification of Corbridge as discontinued operations was triggered for accounting purposes.
Unknown Executive: This treatment is reflected on slide 15. While AIG's total assets of $544 billion as of March 31, 2024, is the same as originally reported, and following the discontinued operations presentation, there is a significant movement within the line item. For example, total investments in cash of $324 billion, as originally reported, decreased to $88 billion in the discontinued operations presentation, with $236 billion of Corbridge investments in cash now included in assets of discontinued operations. Next, we calculate the difference between the fair value of $9.7 billion and the book value on AIG's balance sheet, which was $6.7 billion.
Sabra: On June 9th, we raised our right to majority representation, and one of our designees resigned from the Corbridge board, triggering deconsolidation accounting, as well as the required filing of pro forma financials with the SEC four days later.
Sabra: Discontinued operations and deconsolidation accounting principles drove significant changes in AIG's financials this quarter. We added a few slides in the investor deck to explain these changes which I will refer to in my remarks.
Sabra: Let me start with the impact of held-for-sale and discontinued operations on slide 15.
Sabra: As a result, we reclass Corbridge's assets, liabilities, and net income into assets and liabilities of discontinued operations and income or loss from discontinued operations net of income tax in the AIG financials for the second quarter and prior periods.
Sabra: The next change in the quarter was deconsolidation, which was triggered on June 9th. On the fourth quarter 2023 earnings call, I described the accounting steps related to this principle. Today I'll walk through those steps with the final numbers.
Sabra: Turning to slide 16, the first step is the fair valuing of Corbridge's assets and liabilities as of June 9th.
Sabra: The net fair value amount was $9.7 billion dollars, comprised principally of the $8.6 billion dollar market value of our Corbord shares at that date, and the net fair value of intercompany assets and previously consolidated investment entities.
Unknown Executive: $2.5 billion after, After that, accounting principles require the recognition of $7.2 billion of accumulated other comprehensive losses on AIG's balance sheet, which is unrealized losses on Corbridge's investment portfolio due to higher interest. This recognition records a $7.2 billion loss from AOCI in AIG retained earnings by booking it through the loss and discontinued operations in the income statement and then reducing AIG's AOCI on the balance sheet. This does not change shareholders equity shown on slide 17. AIG shareholders equity was $43.4 billion at March 31st, including Corbridge on a consolidated basis.
Sabra: After that, accounting principles require the recognition of $7.2 billion of accumulated other comprehensive loss on AIG's balance sheet, which is unrealized losses on Corbridge's investment portfolio due to higher interest rates.
Sabra: This recognition records a $7.2 billion loss from AOCI in AIG retained earnings by booking it through the loss and discontinued operations in the income statement and then reducing AIG's AOCI on the balance sheet.
Sabra: To determine the income statement accounting impact of deconsolidation, the $2.5 billion after-tax gain and the $7.2 billion of accumulated other comprehensive loss are added together to calculate the net after-tax loss on deconsolidation of $4.7 billion.
Sabra: AIG's shareholders' equity was $43.4 billion at March 31, including Corbridge on a consolidated basis.
Sabra: This results in a pro forma AIG shareholder's equity of $41.9 billion before deconsolidation.
Unknown Executive: Please note as well that $5.7 billion of non-controlling interest in total equity, which represents the portion of Corbridge equity owned by other shareholders, is also eliminated with deconsolidation through the recognition in the net book value calculation of the gain on sale. We hope this explanation and the slides are helpful in understanding the accounting treatment of Corbridge's deconsolidation this quarter. Second quarter 2024 underwriting income on a comparable basis was $430 million versus $420 million in the second quarter last year, driven by lower expenses, partially offset by higher catastrophe losses.
Sabra: With deep consolidation, Corbidge's debt of $9.4 billion and non-controlling interest of $5.7 billion are eliminated on AIG's balance sheet.
Sabra: We hope this explanation in the slides are helpful in understanding the accounting treatment of Corbridge deconsolidation this quarter. I will now cover second quarter general insurance and other operations results.
Sabra: Turning to general insurance, Adjusted Pre-tax Income, or APTI, was $1.2 billion, up 7% on a comparable basis, due to strong underwriting results and higher net investment income.
Sabra: General Insurance net investment income was $746 million, up 10% on a comparable basis, due to higher reinvestment rates on fixed maturities and loans.
Unknown Executive: Year-to-date underwriting results have been strong, with an accident year loss ratio X catastrophes of 56.3%, mainly driven by changes in business mix compared to the prior year. Based on earned premium roll forward, and barring unforeseen significant changes in loss trends, we expect the accident year loss ratio X catastrophes will remain strong in the second half of 2024 at approximately the same level as the first half. Turning to natural catastrophes, the industry globally had another quarter of elevated losses with approximately 100 events.
Sabra: Year-to-date, underwriting results have been strong, with an accident year loss ratio X catastrophes of 56.3%, mainly driven by changes in business mix compared to the prior year.
Sabra: Based on earned premium roll forward and barring unforeseen significant changes in loss trends, we expect the accident year loss ratio X catastrophes will remain strong in the second half of 2024 at approximately the same level as the first half.
AIG: For AIG, second quarter catastrophe losses totaled $325 million, or 5.7 points on the loss ratio.
Sabra: Our largest loss in the quarter totaled $90 million from exceptionally heavy rains in the UAE.
Unknown Executive: While actual losses will depend on the size and strength of events, our underwriting standards, limits, and reinsurance programs, both occurrence and aggregate, will help reduce the net impact of catastrophe frequency and severity on AIG's balance sheet.
Unknown Executive: Nevertheless, on a global basis, the third quarter is usually by far the highest catastrophe quarter, with losses averaging 40 to 50% of the total for the. Turning to reserves, prior year development, net of reinsurance, was a favorable $79 million, reflecting the net result from DVRs completed on more than $20 billion of reserves, about 45% of the total in the quarter. Overall, the DVRs, which included U.S. casualty, resulted in net favorable development on workers' compensation and modest net unfavorable development of $30 million on excess casualty, including $66 million for Accident Year 2021.
Unknown Executive: The 2021 excess casualty reserve charges were for a few large known losses and commercial auto loss trends, reflecting the rebound in auto frequency and severity after the pandemic lockdown in 2020, when frequency was very low. While we see some favorable trends in the 2016 to 2019 accident years, we will continue to allow time for these years to mature. In North America commercial, renewal rates increased 2% in the second quarter, or 4% if you exclude workers' compensation and financial lines, and the exposure increase was 2%.
AIG: The 2021 excess casualty reserve charges were for a few large known losses and commercial auto loss trends, reflecting the rebound in auto frequency and severity after the pandemic lockdown in 2020, when frequency was very low. We have not seen this increase in frequency and severity trends in the more recent accident years.
AIG: Within the casualty and excess casualty books overall, severity trends remain generally consistent with our assumptions. While we see some favorable trends in the 2016 to 2019 accident years, we will continue to allow time for these years to mature.
AIG: In North America commercial, renewal rates increased 2% in the second quarter, or 4% if you exclude workers' compensation and financial lines, and the exposure increase was 2%.
Unknown Executive: In international commercial, the overall rate was largely flat, or a 1% increase excluding financial lines, and the exposure increase was 3% excluding financial lines. We continue to monitor our portfolio very closely, and while the rate in the second quarter is below trends on certain lines of business, such as property, it is above trend in others. International property is about 100% higher. We continue to get rates in excess of We continue to focus on writing business that has attractive returns, and while the price adequacy of our portfolio, of course, varies by line, it remains strong overall and within our expectations.
AIG: We continue to monitor our portfolio very closely, and while rate in the second quarter is below trends on certain lines of business, such as property, it is above trend in others.
AIG: In 2023, our property portfolio had an excellent combined ratio.
AIG: In North America, casualty lines, in particular excess casualty, we continue to get rate in excess of loss trend.
AIG: We continue to focus on writing business that has attractive returns, and while the price adequacy of our portfolio, of course, varies by line, it remains strong overall and within our expectations.
AIG: Adjusted pre-tax loss in the quarter was $158 million, a 43% improvement year-over-year, primarily attributable to $68 million in core bridge dividends and higher short-term investment income.
AIG: Finally, with deconsolidation, we expect our 2024 adjusted tax rate to be about 24% before discrete items in line with our second quarter.
AIG: With all the changes, we took the opportunity to evaluate our non-GAAP equity metrics, which were established more than a decade ago, when AIG was a vastly more complicated conglomerate.
Unknown Executive: The principal change was revising our calculation of adjusted book value to only adjust for investment-related accumulated other comprehensive income, which is not within management's control and which will revert to par as bonds approach maturity. It is calculated by subtracting from adjusted book value, the market value of Corbridge stock, and gap deferred tax assets related to net operating losses and tax. Both of these assets have significant value to our shareholders but contribute little to AATI.
AIG: Adjusted book value per share was $72.78 per share at June 30th, 2024.
AIG: Over time, as we reduce our ownership in CoreBridge to zero and monetize the DTA through earnings, core operating book value will become the same as adjusted book value.
AIG: Core operating book value per share was $53.35 per share at June 30, 2024.
Michael Zaremski: To wrap up, AIG delivered another excellent quarter with significant financial and operational accomplishments in 2024. Our first question comes from Michael Zaremski with BMO. Your line is open.
AIG: To wrap up, AIG delivered another excellent quarter with significant financial and operational accomplishments in 2024. Achieving the deconsolidation of Corbridge was a major accomplishment this quarter, and we had continued strong profitability and growth in our general insurance business.
AIG: With our portfolio reshaping now largely behind us, we are intently focused on achieving our 10% plus ROE target, driven by strong underwriting and top-line growth, expense reduction, and capital management.
Speaker Change: Great. Thank you, Sabra. Operator, we're ready for questions.
Speaker Change: Thank you. If you'd like to ask a question please press star 1 1. If your question has been answered and you'd like to remove yourself from the queue please press star 1 1 again.
Speaker Change: If we focus on the loss ratio, what the guidance implies on a like-for-like basis on the loss ratio, some of the
Unknown Executive: I'm curious if that's something that's considered within your loss ratio guidance. And I guess just I'll stick with this for my follow-up. So, you know, given pricing, you know, is, um, below the loss trend in certain lines like property, and understanding that the absolute, uh, maybe this is the answer. The absolute pricing levels are still accretive to, to, to the, uh, to our, we are lost ratio. Just, you know, does it, um, Even last year, in the like excess and surplus lines, it was a 34% increase. In retail, it was 30%.
Speaker Change: Thanks Mike for the question. The guidance that we've given in terms of
Speaker Change: everybody is that all the expenses that exist in other operations will transition into parent
Speaker Change: they'll go into the business or they'll be eliminated and that we're not going to be increasing our combined ratios based on the guidance that we gave at the end of, you know, 23. So we're not anticipating any caveats on loss ratios to be able to meet that guidance.
Speaker Change: you know, why does it kind of make sense that the loss ratio should be able to kind of stay flattish and, you know, not trying to be negative, just trying to nitpick on the margin.
Speaker Change: Even last year, in excess and surplus lines, it was a 34% increase.
Unknown Executive: That's after four years of double-digit rate increases. So I think, look at what the low activity in cat insurance maybe in the first quarter, the cumulative rate increases over time when the property combined ratio is fully loaded with cat, even with giving a little bit back in the second quarter has an outstanding combined ratio. And if I can get that combined ratio for the rest of my career, I'll take it.
Speaker Change: The cumulative rate increases over time. I mean, the property combined ratio fully loaded with CAT...
Unknown Executive: I mean, like, I don't think there's any deterioration in terms of what our overall index will be. And again, I can't really predict it. It's why I kind of went into a little bit more detail about the cat market, because we don't know. I mean, like, property is highly driven by what happens in the cat world and underlying inflation.
Speaker Change: I'll take it. I mean, like, I don't think there's any deterioration in terms of what our overall index will be. And again, I can't really predict. It's why I kind of went into a little bit more detail about like sort of the cap market is that we don't know. I mean, like, so property is
Meyer Shields: And so, you know, I'm not going to predict what happens, you know, sort of six quarters from now, but I think we feel really comfortable with the portfolio and its profitability. Thank you. Thank you. Our next question comes from Meyer Shields with KBW. Your line is open.
Unknown Executive: Pardon me, thank you. First question: I was hoping we could get a general sense of the impact of the sale of travel insurance on underwriting results in North America Personal. Hey, Meredith.
Speaker Change: First question, I was hoping we could get a general sense of the impact of the sale of the travel insurance on underwriting results in North America Personal.
Unknown Executive: Good morning. In terms of, I outlined in my prepared remarks, the premium impact, which is the 750 million on net premiums written. But on the overall combined ratio, it's going to be de minimis in terms of what we would lose within, you know, general insurance once we once we perform it out. Okay, perfect.
Mayor: Hey, Mayor. Good morning. In terms of
Mayor: I outlined in my prepared remarks the premium impact, which is the $750 million on net premiums written. But on the overall combined ratio, it's going to be de minimis in terms of what we would lose within general insurance once we pro-form it out.
Unknown Executive: Second question, I guess, on the excess casualties, if I understood Sabra's comments correctly, you had favorable developments, even on that line, outside of 2021, which was a weird year. And I was hoping you could sort of break that down for us. I assume that that's older years rather than recent years, but I wanted to confirm that. Yeah, sure.
Speaker Change: Okay, perfect. Second question, I guess, on the excess casualty, if I understood Sabra's comments correctly, you had favorable development, even on that line.
Speaker Change: I'll hand it over to Sabra, but as you know, and she gave a lot of detail in her prepared remarks, and we reviewed 45% of our total book in the second quarter. And in casualty, just based on what's going on in the global market, we really drilled down on every line of business and every year and went through it in tremendous detail. So, Sabra, maybe you could just give a few highlights in terms of that analysis.
Unknown Executive: And just for everyone's benefit, I'll just start by framing a little bit what we did in the quarter for the DVRs. So this quarter, we evaluated $20.2 billion of reserves for U.S. casualty. That is comprised of 23 separate DVRs and more than 200 different lines of business. And then that aggregates to the five lines that you see on the 10-Q. So the net changes in the quarter were only about $20 million after return premiums.
Unknown Executive: And that was $80 million favorable in workers' comp after the ADC, which has about $8 billion of reserves. It was $22 million unfavorable in excess casualty, which also has about $5 billion of reserves. And then in casualty, it's also about $5 billion reserves for $17 million favorable, including a rebound in auto frequency and severity. In 2022 and 2023 accident years, we just have not had that same level of early claims experience.
Sabra: So the net changes in the quarter were only about $20 million after return premiums, and that was $80 million favorable in workers' comp after the ADC, which has about $8 billion of reserves.
Sabra: It was $22 million unfavorable in excess casualty, which also has about $5 billion of reserves. And then in casualty, it's also about $5 billion reserves for $17 million favorable.
Sabra: In terms of the 2021 accident year, you know, the...
Sabra: including a rebound in the auto frequency and severity. In 2022 and 2023 accident years we just have not had that same level of early claims experience and therefore we still have a high level of IBNR in the reserves. You know with respect to the accident years...
Unknown Executive: And therefore, we still have a high level of IBNR in the reserves. You know, with respect to the accident years within excess casualty, I would note that while we did have 66 million of adverse development in accident year 2021, we had 33 million of favorable development excess casualty from accident years prior to 2016. And that's where the delta comes in, and that's down to closer to the $22 million amount. Got it. That's exactly what he needed.
Unknown Executive: Thank you. Thank you, Mayor. Next question, please. 91.6%. Okay. Thank you.
Mayor: Got it. That's exactly what he needed. Thank you. Thank you, Mayor. Next question, please.
Speaker Change: Thank you. Our next question comes from Elyse Greenspan with Wells Fargo. Your line is open.
Speaker Change: Since you said comparable basis, I'm assuming you mean X-Crop Invalidus.
Unknown Executive: And then my second question is, you also mentioned in your prepared remarks that you said something about exploring inorganic opportunities. Can you just expand on what that means? You guys have obviously taken action on divesting of certain businesses. So what would you look at on the expansion side? And what criteria would any potential inorganic deals need to meet?
Speaker Change: 91.6%
Elyse Greenspan: Okay, thank you. And then my second question is, you also mentioned in your prepared remarks, you said something about exploring inorganic opportunities.
Speaker Change: Can you just expand on what that means? You guys have obviously taken action of divesting of certain businesses. So what would you look at on the expansion side and what criteria would any potential inorganic deals need to meet?
Unknown Executive: You know, financial flexibility, strategic flexibility that, you know, we've created for ourselves. You know, the divestitures have been really about not having... like really, the businesses that we've divested were terrific, and they fit very well with their new owners. But, you know, some of them needed scale, like travel and crop.
Speaker Change: You know financial flexibility strategic flexibility that you know, we've created for ourselves You know the divestitures have been really about not having
Speaker Change: Like really the businesses that we divest were terrific and they fit very well with what their new owners But you know some of them need a scale like travel and crop And you know we want it to be a little bit less than the volatility business and therefore you know about a three was divested
Unknown Executive: And, you know, we wanted to be a little bit less in the volatility business, and therefore, Validatory was divested. I would think as we look to the future, again, we're going to be very selective, very disciplined. But there are opportunities, perhaps, you know, where we have existing businesses, where we feel as though, you know, we have competitive advantages that having more scale would be helpful. There could be complementary geographies, as we look to different parts of the world, but terrific international business.
Speaker Change: I would think as we look to the future, again, we're going to be very selective, very disciplined.
Unknown Executive: But there could be places where, you know, we want to expand further, that give us not only better capabilities within that geography but also could be very good for our multinational network. There are, you know, opportunities to invest further in businesses that we have. Think about, you know, AIG Tata in India is a fast-growing, large-scale business that is an industry leader. And so, there are opportunities there as well. So, we will use the same criteria, which is, you know, to make sure it's disciplined, it's additive, it's strategic, and it actually furthers and accelerates the progress we can make on an organic basis. And so, we will, again, keep giving updates as there's more relevant information to share. Thanks, Elyse.
Speaker Change: could be very good for our multinational network. There are, you know, opportunities to invest further in businesses that we have. Think about, you know, AIG Tata in India is a fast-growing, large-scale business that is an industry leader. And so there's opportunities there as well.
Speaker Change: So we will use the same criteria, which is, you know, to make sure it's disciplined, it's additive, it's strategic, and it actually, you know, furthers and accelerates the progress we can make on an organic basis. And so we will, again, we'll keep giving updates as there's more relevant information to share.
Elyse Greenspan: Thanks, Elyse.
Elyse Greenspan: Hey, thanks. Just a question on the accident year loss ratio, XCAT guidance for.
Speaker Change: approximately the same level in the back half. Can you help us think a little bit more about what goes into that and where that shakes out on a comparable basis versus the, I think, over 100 basis points of improvement AIG has reported here in the first half?
Unknown Executive: It's really driven by the mix of business. You know, if you take a look at this year, compared to last year, on a net premium earned basis, the commercial and personal insurance businesses are literally identical in terms of their overall contribution to total premium. And then the commercial loss ratio largely stayed flat, you know, like a 10 basis point improvement, but largely flat. What happened was the personal insurance loss ratio dramatically improved, driven by North America, which was well over 400 basis points. And so I think that that's really driving, you know, the first six months. And if we look at the back half, should we see the same thing?
Unknown Executive: I think so. But you know, you've seen all the, you know, tremendous new business, the momentum we have, the mix of business could be, you know, changed a little bit, year over year, when we look at the back half of the year, but that's really what's driving the improved loss ratio in the first six months. So it's really a true mix of business and also the significant improvement that North America personal is making, and we expect them to continue to make. Okay. Thank you. And maybe as just a follow up.
Speaker Change: the improved loss ratio in the first six months. So it's really a true mix of business, and also the significant improvement that North America Personal is making, and we expect them to continue to make.
Speaker Change: The move to kind of put some more capital to work and high net worth.
Mike Ward: Is that driven by a change in sort of the view and underwriting opportunities there, or have they always been good for AIG, and what kind of drove that decision to double down now? Thank you. Our next question comes from Mike Ward with Citi. Your line is open.
Speaker Change: The high-net-worth business had the same issues that the commercial business did, which it had too much, you know, TIV, and it gets more pronounced in the high-net-worth business because it's more dense.
Speaker Change: And so we needed to shed aggregate for a lot of reasons, you know, one is that we had too much exposure in certain geographies, like the world changed with COVID, the pandemic, and all the macro factors that affected it, and then also the evolution of, you know, more.
Speaker Change: an admitted platform that is going to be very strong, the right infrastructure and have the ability to grow, but also complement that with the non-admitted market and be able to do that where you have flexibility and form rate and limits and how you can actually respond to client needs. And there's a need. And so what we've been working on is what's the best way to do that.
Speaker Change: Partnering with Ryan's Specialty. It's a highly fragmented wholesale market, so nobody has a real strong expertise.
Speaker Change: you know, sellable, and we have done such a terrific job in terms of creating opportunity for more aggregate, that we want to be able to have both options. And we believe that we'll be able to grow the non-admitted property market.
Speaker Change: Thank you. Thank you. Our next question comes from Mike Ward with Citi. Your line is open.
Unknown Executive: Thank you. Good morning. I just had one question, and it is somewhat related, but overall, for the business, and including commercial lines, I'm curious how you guys are shifting the culture back to sort of a growth mindset, thinking about all the change that you've executed. And, and should, you know, I guess, where are we in that part of the story, and should we think about the idea of potentially being able to grow faster than the market all equal just by turning some So it's not from bigger limits. I would describe it as healthy, horizontal growth.
Peter: I'm going to ask them both to comment on North America and international, it's a great question. Don, why don't you start with how we have actually been very focused on not only retention, but new business in North America. Yeah, thanks Peter. And we have definitely pivoted to that growth mindset.
Speaker Change: The retention.
Speaker Change: that we're delivering high levels of retention across all of our business. I would also add that we're executing on specific market opportunities, notably retail casualty and Lexington.
Speaker Change: On the retail casualty side, we are on offense. The discipline in the excess market is a positive for us right now, and we're moving on that. Regarding LEX, the growth there comes from three places. We have strong, continued strong retention there. New products.
Speaker Change: and new customers. So it's not from bigger limits. I would describe it as healthy, horizontal growth.
Unknown Executive: Regarding the sustainability of it, which I think is important, I can look at some of our LEX submission data and share that with you. Year-to-date submissions at LEX are up 42%. And that's on top of 39% growth in the last year through six months. We view this as a clear flight to quality in that space. I should also add that we've resourced all of that in advance, so we're well positioned to take advantage of what's coming. And Peter, I'd just say this in closing on my end: we're getting all that growth while achieving outstanding loss ratios in the core business. Don, thank you. That was great.
Speaker Change: Regarding the sustainability of it, which I think is important, I can look at some of our LEX submission data and share that with you. Year-to-date submissions at LEX are up 42%, and that's on top of 39% growth through last year through six months.
Speaker Change: I should also add that we resourced all of that in advance.
Peter: So, we're well-positioned to take advantage of what's coming. And, Peter, I'll just say this in closing on my end, we're getting all that growth while achieving outstanding loss ratios in the core business. Yeah. Don, thank you. That was great. Jon, maybe a little bit of context on international.
Jon Newsome: Jon, maybe a little bit of context on international business. Yeah, I mean, I won't repeat what you've already said, Peter or Don, but I would say this is still a very good market for us to underwrite in. We've got a really large, diverse portfolio across international markets, which gives us access to a huge amount of opportunity, different segments, different geographies at different points in time. So we can reshape and shift the book depending on what we see in each market. Similar themes to Don; this has been very planned.
Jon: Yeah, I mean...
Jon: I won't repeat what...
Jon: You've already said Peter or Don, but I would say, you know, this is still a very good market for us to underwrite in. We've got a really large, diverse portfolio across international, gives us access to a huge amount of opportunity, different segments, different geographies at different points in time, so we can reshape and shift the book depending on what we see in each market. Similar themes to Don, this has been very planful. This is not opportunistic growth here. We've been building to this for a long time of a very, very high quality book of business. You know, we start with retaining, you know, 89% of what we've
Jon Newsome: This is not opportunistic growth here. We've been building to this for a long time with a very, very high quality book of business. We start with retaining 89% of what we've worked really hard to build a really strong book. New business submissions are up as well. We're retaining that, our own flight to quality as well as the market. I agree with Don about the market's flight to quality.
Jon Newsome: A couple of highlights for me: we've got a world-class global specialty business that's grown 8% in the quarter. And that's driven by some very, very good new business in all of the global specialty segments, especially in marine and energy, where we are recognized world leaders in both. We've grown new business in marine 15% over Q1 last year, especially strong in cargo in the UK and across Europe. Peter, you already referenced energy, a 13% increase in new business year over year.
Jon Newsome: And that's in all of our global hubs and all of our products, actually. So really, really strong targeted growth with one of our best performing profitable businesses. And I'll just finish on, I'll add in Talbot as well. Talbot at Lloyds.
Operator: Thank you. This does conclude the program. You may now disconnect. Good day. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??
Jon: [inaudible]
Jon: and the market we've got, the pipeline that we've got, we expect to see continued good growth.
Speaker Change: That's great, Jon. Thanks to you and Don for that detail. Really helpful. I want to thank everybody for joining us today. I do want to thank our colleagues around the world for their continued dedication, commitment, teamwork, and all of their execution.
Jon: and congratulate him on his storied career. Tom was instrumental in establishing a global framework for AIG's underwriting standards, governance, and structures in alignment with a refined risk appetite and has just been a terrific executive at AIG. Again, thank you for joining us today. Everybody have a great day.
Speaker Change: Thank you. This does conclude the program. You may now disconnect. Good day.
Speaker Change: ? ? ? ? ? ? ? ? ?
Speaker Change: [inaudible]