Q3 2024 American International Group Inc Earnings Call
The End
The End
Good day and welcome to AIG's third quarter of 2024 financial results conference call. This conference has been recorded. Now at this time I would like to turn the conference over to Quentin McMillan. Please go ahead.
Quentin Mcmillan: Thanks very much for sharing 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.
AIG's filing for the SEC provide details on important factors that could cause actual results or events to different materialy. Except is required by applicable securities laws, AIG is under no obligation to update any forward-looking statements if circumstances or management estimates or opinions should change. Today's remarks may also refer to non-gap financial measures.
Reconciliation and such measures to the most comparable gap figures is included in our earnings release, financial supplements and earnings presentation, all of which are available on our website at aig.com.
Additionally, note that following the consolidation of corporate financial on June 9, 2024, the historical results of corporate for all periods presented are reflected in AIGs condensed consolidated financial statements as discontinued operations in accordance with US GAQ.
Finally, today's remarks related to general insurance results.
including key metrics such as Net Premium's written, underwriting income, margin, and net investment income are presented on a comparable basis.
Quentin Mcmillan: which reflects year-over-year comparisons on a constant dollar basis as applicable and adjusted for the sale of crop-risk services and the sale of validist rates. We believe this presentation provides the most useful view of general insurance results and the GoFoar business in light of the substantial changes to the portfolio since 2023.
Please refer to pages 26 through 28 of the earnings presentation for recommendations of such metrics reported on comparable basis. With that, I'd now like to turn the call over to our Chairman and CEO Peter Zaffino.
Peter Zaffino: Good morning and thank you for joining us today to review our third quarter 2024 financial results.
Follow my remarks, Sabra will provide more detail on the quarter. Then, our North American International Leaders Don Bailey and John Hancock will join us for the Q&A portion of the call.
Before we begin, I want to acknowledge the devastating impact the recent weather events at our communities, which underscores the difficult reality of changing weather patterns and the frequency and severity of these events. At AIG, our claims teams have been working hard to ensure that we respond quickly.
Quentin Mcmillan: I'm grateful to our colleagues for their commitment to our clients and distribution partners. This is our purpose and it's when our company is needed most.
Peter Zaffino: Now let me move to the highlights of our outstanding third quarter performance.
We continue to deliver exceptional underwriting results, maintain rigorous expense discipline, execute on our capital management plan, and make excellent progress on our strategic priorities.
Quentin Mcmillan: A Joseph after tax income was $798 million or $1.23 per diluted share, representing a 31% increase in earnings per share year over year, driven by strong core earnings growth and discipline execution of our capital management strategy.
Underwriting income for the quarter was 437 million, which include a total catastrophe related charges of 417 million.
The calendar year combined ratio was 92.6%.
Quentin Mcmillan: Consolidated Net Investment Income on an adjusted pre-tax income basis was 897 million, a 19% increase year over year.
Quentin Mcmillan: Other operations, adjusted pre-tax loss was 143 million and improvement of 135 million, or nearly 50% year over year.
Quentin Mcmillan: Core operating RAU was 9.2% with Core operating equity of 34.5 billion as of September 30, 2024.
Quentin Mcmillan: In the third quarter, we returned to probably 1.8 billion to shareholders through 1.5 billion of stock repurchases and 254 million of dividends. In addition, we repurched $520 million of common stock in October.
Quentin Mcmillan: We ended the third quarter with a debt to total capital ratio 17.9% including ALCI and parent liquidity of 4.2 billion.
Speaker Change: During my remarks this morning, I will provide information on the following five topics.
Quentin Mcmillan: First, I will review the financial result for our General Insurance Business. Second, I will provide observations on the catastrophe market and specifically AIG year-to-date.
Quentin Mcmillan: Third, I will update you on our progress with AIG NEXT and its impact on other operations.
Quentin Mcmillan: Fourth, I will provide an update on our significant progress in AI and related objectives moving forward. And finally, I'll give more detail on our Capital Imagine Plan and the path to achieving 10% core ROE.
Quentin Mcmillan: Turn into gentlemen's insurance. We had another excellent quarter with strong profitability and growth across our businesses.
Quentin Mcmillan: Gross premiums written for the quarter, or 8.6 billion, and increase of 3% from the prior year.
Quentin Mcmillan: Net Premium is written for the quarter, we're 6.4 billion, a 6% increase.
Quentin Mcmillan: Net Premiums earned for the quarter, or 5.9 billion, a 7% increase with 4.2 billion coming from global commercial.
Quentin Mcmillan: The accident in your combined ratio as adjusted with 88.3%.
Quentin Mcmillan: We had favorable prior year reserved development of 153 million, a benefit of 2.6 points of loss ratio, Sabra will provide more detail in her prepared remarks.
Quentin Mcmillan: In global commercial, we had 7% net premiums written growth over the prior year, quarter driven by over 1.1 billion of new business, which grew 9% year over year, retention remained to 88% which is an outstanding outcome.
Quentin Mcmillan: The Axonier Combined Ratio as adjusted was 84.2% and the calendar of your combined ratio was 89.9%.
Quentin Mcmillan: The GOE ratio was flat year over year while absorbing over 50 million of expenses that shifted from other operations.
Quentin Mcmillan: Global Personal, we have 3% net premiums written growth over the prior year quarter, led by 9% new business growth across our global portfolio.
Quentin Mcmillan: The Axon Year Combined Ratio as adjusted was 97.8% and the calendar of your combined ratio was 98.8%.
Quentin Mcmillan: Both were improvements year over year and we expect this segment to continue to improve its financial performance in 2025.
Quentin Mcmillan: North America commercial group net premiums written by 11% year over year.
Quentin Mcmillan: We had a close-out transaction in the quarter in our casually portfolio that benefited overall growth, but negatively impacted the accident year loss ratio.
Quentin Mcmillan: Absent this transaction, our net premiums written growth would have been in the high single digits.
Quentin Mcmillan: The businesses that drove growth were casualties at 9% excluding the closed-out transaction, 8% in gladfeltre and 7% in Lexington.
Quentin Mcmillan: Retention in North America was 90% in admitted lines and 78% in Lexington, which is an exceptional outcome for an excess in surplus lines business.
Quentin Mcmillan: New Business Growth in the Quarter was simply outstanding. On a year over year basis, we had 22% growth in new business led by Lexington with 24% growth.
Quentin Mcmillan: and the store for Lexington just keeps on going. We had over 95,000 new business submissions in the quarter, a 35% year over year.
Quentin Mcmillan: Taddle these submissions are up over 70% Western world was up over 30% and property was up over 20%.
Quentin Mcmillan: Also our financial lines new business result double digits.
Quentin Mcmillan: This was almost exclusively to a rebound in M&A, following a slow new business quarter for financial lines in the same period last year.
Quentin Mcmillan: North America commercial action year combined ratio as adjusted with 85.1% and the counteryear combined ratio was 95.5% and exceptional outcome given the significant cat activity in the quarter.
Quentin Mcmillan: The Axon Year Laws Ratio is 61.8% for the quarter, which was an increase of 250 basis points year over year and reflected two main variables. First,
Quentin Mcmillan: The Quills out transaction in Agram that I mentioned earlier, while profitable and incrementally beneficial to the overall combined ratio, it carried a higher loss ratio which resulted in a 70 basis point headwind.
Quentin Mcmillan: In 2nd, the actual verse expected in the prior year quarter comparison was very favorable.
Quentin Mcmillan: As a result of our admitted and wholesale property portfolio is experiencing close to 30% rate increases last year. That earned in over 2023 and the early part of 2024 creating a 180 basis point headwind.
Quentin Mcmillan: The combined ratio also benefited from a lower expense ratio reflecting improvement in the GOE ratio.
Quentin Mcmillan: International Commercial Net Premium's written group 3% year over year. Commercial property grew 6% as the global specialty, or international specialty group 10% driven by energy.
Quentin Mcmillan: Our Talbot business at Lloyds also grew 6% driven by 18% growth in the specialty lines, specifically political risk, energy and marine.
Quentin Mcmillan: International Retention Remain Strong at 89% which was very balanced across the portfolio led by energy and property both at 92% and casualty at 91%.
Quentin Mcmillan: International also had very good new business of over 500 million led by global specialty with 25% new business growth the Marine and 40% new business growth in Talbot year over year.
Quentin Mcmillan: The International Commercial Accent New York Combined Ratio as a Jussard was 83.4% another excellent result. The calendar year combined Ratio was 84.3%.
Quentin Mcmillan: Given that the third quarter is usually the most active quarter for natural catastrophes.
Quentin Mcmillan: I want to provide some thoughts on the activity year-to-date and how the evolution of our underwriting and reinsurance strategy has significantly enhanced AIG performance over time, even in light of this historical increased activity.
Quentin Mcmillan: For the first time months of the year, preliminary industry estimates of ensured losses from natural catastrophes are an excess of 100 billion which appears to be the new normal.
Quentin Mcmillan: When considering the impact of Hurricane Milton on the industry and the remainder of the fourth quarter
Quentin Mcmillan: A.I. recently published a report that estimated that the 2024 total ensured losses for the industry from natural catastrophes will likely exceed 125 billion.
Quentin Mcmillan: What analyzing large single catastrophes, the complexity of determining the initial and ultimate loss is complicated.
Quentin Mcmillan: Modeling firms produce industry-lost estimates post-event and there are many factors that go into estimated in the ultimate losses. It is important to note that no two catastrophes are the same.
Quentin Mcmillan: Property-Claim Services or PCS is a widely used source for independent property loss estimates in the United States.
Quentin Mcmillan: The lost figures that they provide are derived from claims activity in other factors at the time of loss, rather than a judgment of the ultimate size of the loss. As a result, the actual scale of the total loss is often subject to misinterpretation.
Quentin Mcmillan: Historically, if you look back at major events including Katrina, Superstorm Sandian Ian, the final report of PCS figures were substantially higher than their original estimates, illustrate in the uncertainty around determining ultimates or best estimates for catastrophe losses.
Speaker Change: And AIG, we've mitigated the impact that weather events have had on our business as reflected in our improved financial performance even as the world has seen more cat activity.
Speaker Change: Over the last five years our losses have dropped dramatically. Both in nominal terms and also in terms of the overall market share of the losses. This is the testament to the work we've undertaken to change in a ball-bore underwriting strategy, reduced volatility, and increase the quality of our earnings.
Speaker Change: If we use 2012 as a reference point, which was a year with meaningful activity, the total insured catastrophe losses on a nominal basis were 65 billion for the industry. That is roughly equivalent to the 20-year average and serves as a useful benchmark.
Speaker Change: Since 2012, expectations for annual industry catastrophe losses have grown substantially.
Speaker Change: The average annual industry loss from natural catastrophes from 2017 through 2023 has increased approximately 90% when compared to the average from 2000 to 2016.
Speaker Change: Since 2017, seven of the last eight years, including the 2024 forecast, have had over a hundred billion of annual ensured losses.
Speaker Change: It's important to note against this heightened level of natural catastrophe losses.
Speaker Change: Based on public reports, we estimate approximately 50% of the insured natural catastrophe losses.
Speaker Change: who have absorbed in the reinsurance market from 2017 to 2022.
Speaker Change: However, following the major market reset in 2023, approximately 90% of the losses were retained by the primary insurance companies.
Speaker Change: and this is a significant change.
Speaker Change: As I've discussed several times, the work we've done to change AIDs approach to underwriting a reinsurance, as result in intermedicant provenance in our financial performance and balance sheet.
Speaker Change: Let me give you some specific points to contextualize the magnitude of this impact.
Speaker Change: Based on AG's legacy underwriting strategy and reinsurance choices in 2012, AG posted an initial pre-tax loss of 2 billion from Superstorm Sandy, which represents almost 7% of the estimated 30 billion market loss for that single event.
Speaker Change: And for the full year 2012, AIG recognized approximately 2.7 billion of losses, or approximately 4% of the market losses.
Speaker Change: Today, AG is forecasted to be within our catastrophe loss expectations for the full year. For more importantly, less than 1% market share of the forecast of total industry loss for 24, over 125 billion.
Speaker Change: Additionally, it's worth noting that a property portfolio net premiums written are crossed with the same amount in 2024 as there were in 2012. However, today we have 80% lower cat losses and volatility.
Speaker Change: And importantly, our year to date 2024 commercial property combined ratio was in the low 80s. Compared to a combined ratio of nearly 120% in 2012.
Speaker Change: We've completely transformed our business over the past five years and this is the new AIG.
Speaker Change: AIG strategy to manage volatility through our gross underwriting actions and our approach to reinsurance.
Speaker Change: including our decision to maintain the lowest net retention amongst our global competitors has delivered significant benefits for the company and positions us well for the future and an environment with significantly elevated and shared loss activity and modeling on certainty.
Speaker Change: Let me take a minute to comment on high level expectations for the upcoming January 1 renewal season for property.
Speaker Change: The significant reset in the property cat reinsurance mark in 2020-23 means that reinsurers generally have higher attach-and-points, provide name-parals and have significant retro protection, and therefore are likely to make an underwriting profit on their global catastrophe portfolios in 2024.
Speaker Change: Given the current loss levels and the benefit of reinstatement premiums
Speaker Change: With this expectation of underwriting profit, the overall Reinsurance Market should remain healthy.
Speaker Change: Despite the strong capital position of the market, generally speaking, I would expect the market to remain disciplined at January 1, not reducing attachment points and focusing on deploying capital to the insurance companies with higher quality portfolios like AIG.
Speaker Change: Given that this has become the industry norm, as I mentioned earlier, industry losses from increased frequency and severity will continue to be realized by primary insurers and will not be solved by the reinsurance market in 2025.
Speaker Change: Let me move on to provide enough data on AIG next.
Speaker Change: which we launched in early 2024 to further position AIG for the future.
Speaker Change: Over the past several years, we've been on a journey to simplify the company by weaving the organization together to operate seamlessly across underwriting, axiwarial, claims, and all of our functional areas with the necessary skilled and capabilities to effectively differentiate AIG for the future.
Speaker Change: In 2025, we expect to fully realize the $500 million in savings from AIG NEXT. These savings will impact multiple areas across other operations and general insurance.
Speaker Change: As part of the AIG Next program, we've established a new definition of parent expense to exclusively reflect costs related to being a global, regulated public company,
Speaker Change: and expect those costs to be around $350 million going forward.
Speaker Change: In the future, costs currently attributed to other operations will either be eliminated or included within the general insurance results.
Speaker Change: You can see the impact of this effort already flowing through our income statement as other operations expenses are down nearly $30 million year over year or $40 million sequentially.
Speaker Change: This reduction reflects the expense benefits from AIG Next and the transfer of a portion of these costs to General Insurance GOE.
Speaker Change: The ability of the businesses to absorb these additional costs with minimal impact to the expense ratio is due in large part to our significant focus on managing expenses.
Speaker Change: AIG Next has also enabled us to invest in core capabilities and the implementation of strategic innovation initiatives, notably in underwriting claims and our data, digital, and AI strategy.
Speaker Change: Let me provide you with more detail.
Speaker Change: Many companies are discussing their data, digital, and AI strategies.
Speaker Change: But what is actually being done varies greatly from company to company.
Speaker Change: At AIG, we're utilizing Gen-AI and large-language models as digital accelerators and applications that support the innovation journey, but they are not the innovation alone.
Speaker Change: This is what makes our recently announced collaborative space in Atlanta so unique.
Speaker Change: It will be the first location in our global footprint where an end-to-end underwriting process will exist from distribution and sales to data insights, underwriting, claims payments, and client servicing.
Speaker Change: This location will allow us to innovate and evolve the end-to-end process.
Speaker Change: further develop our agentic Gen-AI ecosystem.
Speaker Change: drive role clarity and digitize and modernize our processes.
Speaker Change: Gen-AI can produce meaningful gains from reducing manual inputs and driving process efficiencies. However, our Gen-AI ecosystem is doing much more than that.
Speaker Change: It integrates proprietary data from multiple sources with data ingestion capabilities to give us better data quality in a fraction of the time.
Speaker Change: In our early pilots, we've seen data collection and accuracy rates within our underwriting processes improve from levels near 75% to upwards of 90% while reducing processing time significantly.
Speaker Change: We're also using our Gen-AI ecosystem to increase our submission response rate while enabling our underwriters to prioritize the highest value business within our risk appetite.
Speaker Change: These improvements will help drive growth and operating leverage as we deliver Gen-AI to our businesses at scale.
Speaker Change: It will allow our underwriters to spend more time quoting and winning business, and less time manually collecting data.
Speaker Change: Our culture at AIG is one that is deeply rooted in underwriting expertise and excellence.
Speaker Change: We help clients solve complex risk issues that require judgment and a nuanced understanding of clients needs.
Speaker Change: Maintaining the underwriter at the center of decision-making will continue to be paramount and a key differentiator for us.
Speaker Change: Our AI initiatives are designed to do just that, deliver better outcomes and drive operating leverage while keeping highly experienced underwriters at the core of the process.
Speaker Change: I'm now going to turn to capital management, where we continue to execute our balanced discipline strategy.
Speaker Change: Our objectives are to preserve strong insurance company capital levels to support organic and potentially inorganic growth, maintain conservative debt leverage ratios, return excess capital to shareholders in the form of share repurchases and dividends, and maintain parent liquidity.
Speaker Change: We've made substantial progress over the last several years to improve the financial strength of AIG.
Speaker Change: General Insurance is well positioned for sustained profitable growth.
Speaker Change: This has been a multi-year process that centered on executing on our underwriting strategy while increasing profitability and reducing volatility in our portfolio through a better mix of business, along with the strategic use of reinsurance.
Speaker Change: An important result of our improved profitability is our ability to receive ordinary dividends from our operating subsidiaries, which provides consistent and increasing liquidity to the parent company.
Speaker Change: Year-to-date, we've received ordinary dividends, or their equivalents, of approximately $3 billion from our businesses.
Speaker Change: Our financial strength is also evidenced by the lower levels of debt on our balance sheet.
Speaker Change: Historically AIG had one of the highest debt to total capital leverage ratios in the industry at over 30%.
Speaker Change: In 2024, we have reduced debt levels by a billion, bringing our debt-to-total capital leverage ratio to 17.9%, including ALCI, amongst the lowest in our peer group, an achievement that requires significant discipline.
Speaker Change: Through the first nine months of 2024, we returned over $5.5 billion to shareholders through $4.8 billion of common stock repurchases and $765 million of dividends.
Speaker Change: As we've stated previously, we will continue to execute on our $10 billion share repurchase authorization over the course of 2024 and 2025, subject to market conditions and timing of the closing of pending transactions.
Speaker Change: The current authorization will bring us within our target share count range of 550 to 600 million shares.
Speaker Change: Importantly, our anticipated parent liquidity provides a flexibility to support additional share repurchases, which we will review in 2025.
Speaker Change: Earlier this year, we increased the cash dividend to shareholders on AIG Common stock by 11%.
Speaker Change: We will continue to review our dividend annually, considering additional increases as appropriate, supported by our increased earnings power. This will be an important focus for us in 2025 and beyond.
Speaker Change: We ended the third quarter with parent liquidity of $4.2 billion.
Speaker Change: With the combination of our disciplined capital management, sustained, continued underwriting performance, and focus on expense management, we expect to deliver a 10% core operating ROE for the full year 2025.
Speaker Change: We recognize that with core operating equity of $34.5 billion at the end of the third quarter, parent liquidity, our capital in the insurance company subsidiaries, and future proceeds from Corbridge sell-downs, we have excess capital for the size of the business we are today.
Speaker Change: We will proactively manage our capital over time to support growth in our business and we will maintain a capital management strategy centered on balance and patience.
Speaker Change: while remaining nimble to execute should attractive opportunities arise.
Speaker Change: In summary, I'm very pleased with our outstanding third quarter performance. As we approach year end and plan for 2025, our path forward is clear. We will continue to solidify AIG's position as a global market leader and remain focused on value creation for our customers and shareholders.
Speaker Change: With that, I'll turn the call over to Sabra.
Sabra: Thank you, Peter. This morning, I will provide details on third quarter results for general insurance, net investment income, other operations, and capital.
Sabra: Turning to general insurance, Adjusted Pre-Tax Income, or APTI, was $1.2 billion.
Sabra: Underwriting income was $437 million, including $411 million of catastrophe losses.
Sabra: Hurricane Beryl and Helene were the two largest losses in the quarter.
Sabra: Hurricane Milton made landfall on October 9th and therefore its financial impact will be recognized in the fourth quarter.
Speaker Change: Peter commented on the complexity of determining ultimates for natural catastrophes and, at this point, we have a very wide range of estimates from modeling firms.
Speaker Change: Claims activity to date for Milton has been relatively light compared to storms of similar strength and intensity.
Speaker Change: Our current preliminary loss estimate for Milton is between $175 million and $275 million.
Speaker Change: The third quarter 2024 accident year combined ratio as adjusted was 88.3%, about 140 basis points higher than last year, principally due to changes in premium mix and reinsurance structure and favorable actual versus expected experience in the third quarter of 2023.
Speaker Change: We also had one large closeout transaction, which Peter mentioned, that increased the consolidated loss ratio by about 40 basis points.
Speaker Change: Year-to-date, the accident-year combined ratio is 88.1%, down 60 basis points from 2023.
Speaker Change: The accident year loss ratio was 56.4 for the quarter, including the impact of the closeout transaction, and 56.4 year-to-date, flat with the first nine months of 2023. We expect the fourth quarter accident year loss ratio, as adjusted, will be in line with the first nine months of this year.
Speaker Change: Turning to prior year development.
Speaker Change: This quarter we had $153 million of favorable prior year development, including $34 million from the ADC amortization.
Speaker Change: During the quarter, we completed detailed valuation reviews, or DVRs, on almost $22 billion, or 47% of our total loss reserves.
Speaker Change: We reviewed most of the reserves for International in addition to North America property and financial lines.
Speaker Change: Overall, we had favorable prior year development on short tail lines in global specialty and global commercial property and a modest amount in North America financial lines.
Speaker Change: This was partially offset by $181 million of adverse development in UK and Europe casualty and financial lines on about $8 billion of reserves.
Speaker Change: This reflects refinements in loss estimates due to recent claims emergence and settlement activity on specific exposures in accident years 2019 and prior, consistent with our reserving philosophy of addressing bad news quickly.
Speaker Change: In addition, we increased U.S. excess casualty reserves by $72 million due to a large settlement of a legacy mass tort claim, also related to accident years 2019 and prior, with most of the gross loss in the accident years that were ceded to the ADC.
Speaker Change: We remain very comfortable with the adequacy of our loss reserves, having completed DVRs covering more than 90% of reserves year-to-date, and considering the results of our monthly actual versus expected process and other claims diagnostics.
Speaker Change: While North America financial lines had a slight amount of favorable development from accident years 2021 and prior,
Speaker Change: We did not adjust loss reserves for more recent accident years, which have continued to show favorable indications relative to our book's loss assumptions, consistent with our reserving philosophy of giving favorable experience time to mature.
Speaker Change: Turning to pricing and loss trends.
Speaker Change: Third quarter experience in global commercial lines was consistent with second quarter 2024 trends.
Speaker Change: Excluding financial lines and workers compensation, AIG's global commercial pricing, which includes rate and exposure, increased 6% largely in line with lost cost trends.
Speaker Change: In North America commercial, which is about half of our global commercial book, pricing excluding financial lines and workers' compensation was up 7%, with rate up more than 5%.
Speaker Change: North America casualty rate increases were strong, with Lexington averaging 16% and retail casualty averaging 13%.
Speaker Change: These are well above our casualty loss cost trends, which, as we've previously disclosed, are at 10% or higher depending on the line, risk, and attachment point.
Speaker Change: Property rates in North America retail in Lexington were consistent with second quarter and the underwriting margin remained strong, supported by cumulative rate increases over the past several years and our disciplined underwriting approach, particularly to cat exposed property.
Speaker Change: Pricing in international commercial, excluding financial lines, was up 4%, in line with loss trend, and underwriting profitability remains very strong.
Speaker Change: International property continued to achieve overall pricing in excess of loss trend.
Speaker Change: Our global footprint and diverse portfolio enable us to remain agile, focusing on lines of business with attractive risk-adjusted returns while maintaining underwriting discipline.
Speaker Change: We are confident that the overall strength of our portfolio positions us to deliver sustainable underwriting profitability.
Speaker Change: Turning to investments, our investment portfolio is of high credit quality, well diversified by asset class, and matched to our liability duration.
Speaker Change: Third quarter 2024 net investment income on an APTI basis was $897 million, up 19% from the third quarter of 2023.
Speaker Change: driven by increased reinvestment rates on fixed maturities, higher short-term investment income, Corbridge dividends and other operations, slightly better private equity returns, and lower investment expense.
Speaker Change: Reinvestment yields on fixed maturities and loans remains above runoff yields, providing positive yield pickup in the quarter. The average new money yield on general insurance fixed maturities and loans was 60 basis points higher than sales and maturities, adjusted for one large sale in the quarter.
Speaker Change: General insurance investment income was $773 million, including income on fixed maturities, loans, and short-term investments of $718 million and alternative investment income of $43 million.
Speaker Change: Considering the current interest rate curve, we project fourth quarter general insurance investment income on fixed maturities, loans, and short-term investments.
Speaker Change: to the approximately $710 million
Speaker Change: due to the impact of floating-rate security resets partially offset by higher reinvestment yields.
Speaker Change: About 11% of our fixed maturities have monthly or quarterly floating rate resets to SOFR or other short-term market indices which began to decline in the third quarter.
Speaker Change: Alternative income is principally from traditional private equity and now includes real estate investment funds that were previously consolidated.
Speaker Change: These assets are reported on a one-quarter lagged basis, and, based on third-quarter market performance, we expect fourth-quarter private equity results may be similar to the year-to-date annualized return of 3.5%.
Speaker Change: Turning to other operations, adjusted pre-tax loss in the quarter was $143 million, a nearly 50% year-over-year improvement driven by lower GOE and interest expense and higher net investment income, which totaled $125 million in the quarter.
Speaker Change: Considering both lower short-term rates and projected parent liquidity balances before proceeds from any strategic transactions, short-term investment income could decline in the fourth quarter by about 25 million dollars sequentially.
Speaker Change: To wrap up the quarter, the balance sheet remains very strong.
Speaker Change: Book value per share was $71.46 at quarter end, up 4% from June 30, 2024, due to the favorable impact of lower interest rates on AOCI. Book value per share increased 10% from year-end 2023.
Speaker Change: Adjusted book value per share was $73.90 up 2% from June 30th due to reduced shares outstanding and was down 6% from year-end 2023 due to different accounting treatment of Corbridge between the two periods.
Speaker Change: As Peter noted, our debt leverage ratios are very strong.
Speaker Change: We recently called a $400 million par zero coupon bond, which will close November 22nd.
Speaker Change: Core Operating ROE, which measures the annualized return on AIG shareholders' equity, excluding the value of core bridge shares and deferred tax assets, was 9.2% in the quarter and 9.3% year-to-date, reflecting strong general insurance profitability and capital levels.
Speaker Change: To conclude, AIG delivered another excellent quarter with significant financial and operational accomplishments. We are confident in our ability to deliver sustained underwriting results and a 10% core operating ROE in 2025, and we look forward to updating you on our progress.
Speaker Change: With that, I will turn the call back over to Peter.
Peter Zaffino: Thank you, Sabra. And Michelle, we're ready for our first question.
Speaker Change: Thank you. If you would 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. Our first question comes from Myer Shields with KBW. Your line is open.
Myer Shields: Accenture's financial lines are emerging better.
Myer Shields: than expected, but you're not booking that yet. Can you talk a little bit about what's happening in the older accident years for, I guess, financial lines or casualty? We saw the one-off.
Peter Zaffino: issues, but I'm wondering more broadly, is there the same sort of theme in the older accident years that could be getting closer to acknowledgment?
Speaker Change: Thanks, Merrick. Good morning. I think Sabra provided quite a bit of detail and prepared remarks, but Sabra, do you have anything to perhaps give a little bit of context on financial lines?
Peter Zaffino: Yeah, and let me just make a few comments. I mean, obviously we had very strong favorable development in the DVRs this quarter.
Sabra: Consistent with our approach, we have allowed favorable development to, or favorable experience, to mature. And this quarter, particularly on shorter tail lines, we had about $300 million of favorable development. I would just note that this quarter did not include workers' compensation. That was done in the third quarter of last year, and this year it was done in the second quarter, and we'll do it in the second quarter for next year as well.
Sabra: You know, what I would just comment on in terms of the, I'll talk to the excess casualty first because I know that's been some focus. The trigger for the action in North America casualty, excess casualty, was for a particularly large settlement.
Sabra: gross of reinsurance which was from very old accident years that were covered by the ADC. You know absent this settlement we we would not have made any adjustments in that line because the DBRs for that line are done in the second quarter normally.
Sabra: you know, turning to financial lines.
Peter Zaffino: was about $28 million in total. That was driven by the adverse development on U.K. financial lines, which again was an older book related to some specific exposures. We did actually recognize favorable development on the U.S. and international portfolios, and I would note that that was for older accident years. The favorable development that we recognized is generally in older years where the experience has matured as the policy form, as claims is made, but we continue to hold reserves obviously for those older accident years based on the existing claims or other activity within that book.
Peter Zaffino: and we will evaluate again in the third quarter of next year is when we'll do our deep dive on the Global Financial Lines portfolio.
Meyer Shields: Thanks Sabra. Mayor, is there a follow-up?
Meyer Shields: Yeah, just a quick one. Peter, you talked a lot about your expectations for property reinsurance in 2025, and I was hoping for an update on your thoughts of the appropriate reinsurance program, property reinsurance program for AIG, whether you're thinking of other, changing your net exposure.
Peter Zaffino: I covered a lot in my prepared remarks. Again, I think the industry's become, you know, experts on, you know, reinsurance pricing, and I expect that the market will be, you know, orderly, but I don't expect attachment points are going to come down, you know, for the industry.
Meyer Shields: What I was trying to outline in my comments was that most of it's retained by insurance companies today. And so therefore, how we're going to price business going forward, how we're going to understand the frequency of CAT is going to be really important to do as an insurance company and not rely on reinsurance.
Peter Zaffino: I don't think we're going to have a material change.
Peter Zaffino: in our structures. Of course, we have low attachment points. It's very complex and I won't spend a lot of time on it, but
Peter Zaffino: We certainly have the balance sheet We certainly have the risk appetite to take a little bit more net in the event that we want to but we like having
Peter Zaffino: low attachment points on severity, and we like having our aggregate that protects us from frequency. And so we manage our net according to our risk appetite. It's within expectations, and I would expect us to continue the same strategic philosophy.
Speaker Change: Okay, perfect. Thank you so much. Thank you.
Speaker Change: Thank you. Our next question comes from Brian Meredith with UBS. Your line is open.
Brian Meredith: Yeah, thank you. Peter, I think we're hearing a little bit from other companies about some improvement and Casalie, particularly E&S, Casalie Lines, and maybe Properties Monitoring. I wonder if you give us some color on your view of market conditions and kind of organic growth opportunities here in the fourth quarter and heading into 2025.
Speaker Change: Thanks, Brian, and I'm going to make a comment. I'm going to have Don talk specifically about Lexington, but you're absolutely right. We see opportunities.
Speaker Change: Our clients, we have such strong retention and they're looking for us to solve risk issues. New business opportunities are very good. The rating environment's very good. So we're cautious, but we think there's opportunities to grow.
Speaker Change: in the retail casualty space in multiple, you know, segments that we have, as well as in E&S. I mentioned in my prepared remarks that, you know, our casualty submissions in E&S have been dramatic, and we see, you know, great growth opportunities there. But Don, maybe you could expand a little bit on the Lexington.
Speaker Change: Great. If I could, Peter, just make a couple high-level comments on North America overall and then dig deeper into the Lex growth because they are kind of balanced. So the double-digit growth in North America is balanced growth. We're growing the lines where we see attractive opportunities and to the point of your question, we're growing in all three channels where we operate, retail, wholesale, alternative.
Speaker Change: Peter Kammerer covered some of the North American growth drivers. Positive rate of 3% across the portfolio. Strong retention of 87%, 90% in the admitted lines. And then overall, strong new business growth of 22% on Lexington.
Speaker Change: We do continue to invest in LEX across all lines. So you'll see LEX continue to show up with more resources, more products, enhanced capabilities going forward.
Speaker Change: on the third quarter performance.
Speaker Change: 78% per attention, which is really strong, a 24% increase in new business, and to the point of your question, casually showed up very well in the E&S space in terms of new business for the quarter. We also saw a 35% increase in submission, so the submission activity continues to be very robust in the E&S space for us.
Speaker Change: It's generated probably by two things. One is just increasing demand for E&S solutions in general and a flight to quality within E&S.
Speaker Change: For me personally, when I think about the nature of a wholesale broker today versus when I started in this industry, it's a completely different game. The brokers in the wholesale space operate at a different level today. Incredibly well-resourced, data-driven, effectively deployed technology to drive efficiency, which is critical in wholesale.
Speaker Change: They're also increasingly being embraced by thousands of independent agents.
Speaker Change: for market access and placement capabilities. So, Lex will continue to benefit from that trend in terms of the growth of our book and new business. And Peter, just a couple of data points to close out on E&S, which might be helpful. Today, E&S represents 12% of the $115 billion U.S. P&C industry. In 2018,
Speaker Change: E&S was 7% of a $50 billion industry.
Speaker Change: so the pie has gotten considerably larger. And the last data point I'd give you just on distribution, the top five wholesale brokers control over 65% of the growing $115 billion U.S. E&S market. Lex is very well positioned at E&S and very well positioned with these top brokers. Great.
Speaker Change: Thanks, Don. Brian, do you have a follow-up? Yeah, absolutely. A bigger picture question here, Peter. So, I think you said that you're expecting a 10% core ROE for 2025. You know, if I look at peer companies, they're kind of trending in the mid to even higher teens.
Brian: What's your kind of longer-term view of, you know, kind of ROE aspirations? Do you think you can get to pure ROEs and what do you think it's going to take to get there? Is it more margin improvement? You need to kind of grow acquisitions? Just curious, bigger picture, your thoughts there.
Speaker Change: Yeah, thanks Brian. I mean obviously, you know, we've been talking a lot about the 10%
Speaker Change: and gave guidance in my prepared remarks about getting to that in 2025.
Speaker Change: There's a variety of ways in which we can get there. You know, we talked about our combined ratio.
Speaker Change: and the opportunities to improve that. We have such a great underwriting culture and believe that there's lots of opportunities. Of course, it's market dependent, but our leadership position in the market allows us to remain disciplined and focused on clients.
Speaker Change: There's the other variables I mean certainly it's our equity base we talked about that a little bit and that we believe we can grow into it and that's of course going to generate you know more earnings opportunity our net investment income
Speaker Change: Net premiums written both from, you know, pure growth in terms of, you know, strong retention, more new business, but also, you know, reinsurance structures, how we look at.
Speaker Change: proportional versus excess of loss and there's ways in which we could have some tailwinds there. Quality of our reserves which we continue to emphasize Sabra gave a lot of detail and prepared remarks and on the answer just now so we have a lot of confidence there.
Brian: capital management actions. We have lots of flexibility subject to when we close Nippon and do other capital, you know, market transactions, but there's lots of ways in which, you know, from a capital management standpoint, allow us to improve.
Brian: Our ability and track record to successfully manage volatility is very important. And then the last one is our expense management is very disciplined. We are executing on AIG Next.
Brian: That showed itself in the third quarter. You know, we're not looking, you know, to hit the ball out of the park every quarter leading in 2025. We pulled guidance forward that we will, you know, be able to get, you know, other operations, which was substantially higher to a $350 million, you know, lien parent, but also get the expenses either eliminated or into the business without increasing the combined ratio. We're well underway. You can see evidence of that in the third quarter. You'll see more evidence of that in the fourth quarter. So there's a bunch of ways in which I think that we can deliver it. And once we get north of the 10%, you know, we'll provide guidance after that, but thank you.
Brian: Thanks.
Speaker Change: Thank you. Our next question comes from Rob Cox with Goldman Sachs. Your line is open.
Rob Cox: Hey, thanks.
Rob Cox: I think you guys had previously noted M&A potentially becoming a more meaningful consideration for capital deployment, but you also mentioned revisiting share repurchase guidance as you expect some further liquidity coming in next year. Can you give us an update on your appetite for M&A and how that might help you reach premium leverage objectives quicker than organically?
Speaker Change: Sure, Rob, thanks. I'll start with the second part, you know, the guidance we gave.
Rob Cox: was that we would do, you know, $10 billion of share repurchases in 2024 and 2025. And so, like you can see through the third quarter, you know, we are well underway executing every quarter. We'll have more liquidity coming in. And so that's the priority with the proceeds coming in from Nippon and, as I said, other marketed deals and liquidity that we currently have in our company. In terms of M&A, we have given ourselves
Speaker Change: Lots of options, you know, we have the financial strength, the financial flexibility to explore inorganic opportunities
Rob Cox: We're always looking at ways in which we can add strategic relevance.
Speaker Change: and something that's compelling to AIG. We already have sizable, you know, very high-quality businesses in major markets. I mean, you know about the U.S., U.K., Japan, Singapore, Europe. We believe we can grow those businesses organically, but there may be more opportunities to expand inorganically as well.
Speaker Change: We're going to remain very disciplined, but we are going to look at businesses and opportunities in an organic that may complement our geographical footprint or product capabilities.
Speaker Change: there's opportunities maybe to go into spaces that we're not in today maybe some of the SME
Speaker Change: or looking at ones that enhance scale of businesses that we already have market leadership that just will accelerate.
Speaker Change: Sabra Purtill, Sabra Purtill, Quentin McMillan
Speaker Change: Okay, great. Thank you. And as a follow-up on GOE and general insurance...
Speaker Change: It didn't necessarily appear like it decreased as much as the run rate in the first half of the year. So I was just hoping you could discuss kind of the puts and takes and the general insurance GOE ratio and if this level of improvement is sort of in line with expectations.
Speaker Change: We are absorbing a lot of the expenses as they get pushed into the business and so while
Speaker Change: you know the the personal insurance year over year the nominal was down and then on uh commercial it was slightly up when you look at putting uh 50 million dollars more of cost in you know the run rate is actually uh you know quite attractive and so
Speaker Change: We have two major initiatives that have begun to earn in the third quarter, but you'll start to see a lot more of that in the fourth quarter, and as we get to 2025, one was our voluntary early retirement plan that we had announced in the United States, and then we did
Speaker Change: a restructuring international that just really happened in September.
Speaker Change: And so you'll start to see more run rate as we get into the fourth quarter and next year. But I'm really pleased with what we did in the third quarter and believe we are showing a lot of sequential improvement.
Speaker Change: and executing to this, you know, future state operating model that's going to be much leaner, much simpler, much easier to follow.
Speaker Change: Awesome, thanks for the caller. Thanks, Rob.
Speaker Change: Thank you. Our next question comes from Alex Scott with Barclays. Your line is open.
Alex Scott: Hi, good morning. I had a follow-up on just sort of the leverage, you know, and I guess thinking through, you know, both leverage down at the operating companies as well as financial leverage.
Alex Scott: When I look at the ROE, that seems to be the place where you're under indexed for some of the peers, not so much like the actual combined ratio and so forth. So I was interested in, I guess, on the debt leverage side.
Speaker Change: we are at a place where leverage can actually begin to come up as you see opportunities, particularly if you do engage in M&A. And then,
Speaker Change: core operations, I mean can you frame at all like how much dry powder you see in terms of being able to lean into some of these opportunities if they get better in casualty?
Speaker Change: So thanks, Alex, for the question on leverage. Yeah, we have a lot of, I think it goes into what I said about, you know, potential M&A.
Speaker Change: where we've given ourselves a lot of financial flexibility if we find something compelling and attractive.
Speaker Change: I think the high teens of a leverage to total capital.
Speaker Change: including ALCI we're very comfortable with, but absolutely what you were asking is a truth, which is if we find no opportunities, can we increase our leverage to be able to execute on that? The answer is yes, we can and we're gonna be very mindful.
Speaker Change: Obviously, the primary use for proceeds from the Corbridge sell-down will go to share repurchase, but we could, you know, continue to work on, you know, leverage a little bit to give us even more financial flexibility over time.
Speaker Change: In terms of, I just want to make sure I understand the second part, which is, you know, having, we have a lot of, you know, capital. I don't...
Speaker Change: I think it's a moment in time and to quantify what we think is excess, you know, today, I don't think is something that is overly constructive just because we intend to grow into that, you know, we have.
Speaker Change: I think we'll get them. Property was probably the one that was sort of slowing down in terms of...
Speaker Change: pricing but you know Milton and Helene have changed a lot and I think that there'll be more you know flight to quality and there'll be more flexibility for AIG in terms of our ability to drive you know property growth and on a risk adjusted basis.
Speaker Change: throughout the world and so like I think the balanced portfolio opportunities to grow, being able to take more net, and being able to hit that 10% ROE is our near-term objective.
Speaker Change: Got it, that's helpful. Maybe a quick follow-up on personal lines in North America. Can you just give us an update on sort of where we stand with that MGA structure that was put in place and you know over what period of time you'd expect that combined ratio to come down below 100%?
Speaker Change: Yeah, thank you, you know, for the question. I mean, North America personal is in a transition as we've spoke about. It's hard in the...
Speaker Change: you know, primary high net worth business to affect change fast, but we're making great progress. The in the quarter alone, the attritional loss ratio has improved on a meaningful basis, GOEs down.
Speaker Change: What you're seeing is the acquisition ratio increased quite a bit as we transitioned to the MGU. Now, there's a few things happening that will reverse that.
Speaker Change: I want to talk a little bit about like the strategy that that we talked about which is
Speaker Change: going into more non-admitted and how that's going to accelerate progress. And we announced it last quarter, but just a couple statistics that will frame why it's early days, but it's working.
Speaker Change: The rate environment that we're in on an admitted basis in the high net worth, we increased 10%. In ENS, it went up 20% on our held book. Our partnership with Ryan's Specialty, they're building infrastructure, building sales capacity.
Speaker Change: We're appointing a lot of retail agents that had no access to AIG or capital for high net worth before are signing up. We expect that to accelerate and continue to grow. In the third quarter, our new business, 50% of it was ENS.
Speaker Change: Thank you.
Speaker Change: In 2025, E&S alone in our strategy will grow the top line 10%. The demand is going to be significant. Our ability to be able to respond to that demand is there with plenty of capacity and an appetite that is going to allow us to improve the risk-adjusted returns and the overall combined ratio.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Elyse Greenspan with Wells Fargo. Your line is open.
Elyse Greenspan: Hi, thanks. Good morning. My first question was just on the North America commercial.
Elyse Greenspan: you know if I adjust out the you know one off the one off in the quarter right the
Elyse Greenspan: It came in at 61.1 on an XCAT Accident Year Loss Ratio basis. You guys were at 61.9 in the first half of the year. So I was just hoping to get more colors, you know, on what's true of the improvement in the quarter and if that's sustainable into the fourth quarter and 2025.
Elyse Greenspan: subs by www.zeoranger.co.uk
Speaker Change: This is not going to be like the 91.6 question, is it Elise?
Speaker Change: Dumb.
Speaker Change: Don, do you want to just give a little bit of insight in terms of...
Speaker Change: What's happening with the loss ratio?
Speaker Change: So, in the North American portfolio this year, we've seen some different movements, Peter, and some of it, if you look at, we have some one-off movements that certainly move the loss ratio, this one, which you talked about in your prepared remarks. We talked a little bit about the one-time closeout deal that we did that moved it up, so adverse implications.
Speaker Change: In the commentary, at least, we sort of backed out the two...
Speaker Change: They weren't headwinds, they were just anomalies relative to what the prior year was. And then the mix of business will continue to change. We see, you know, real opportunities to grow in
Speaker Change: in casualty, and so those may have a different loss ratio relative to the overall portfolio.
Speaker Change: We think there's going to be growth opportunities in property based on the market dynamics that are shifting.
Speaker Change: in 2025.
Speaker Change: and we see that the headwinds on pricing and financial lines are slowing down. We are not going to continue to ride that wave down.
Speaker Change: and on lead, first access, and leading in D&O.
Speaker Change: You know, I think Don's highlighted this, is that we've seen a slowdown in the rate reductions and as we look into 2025, that's all going to stabilize. So I think that mix, if you take out the two things we talked about, which was significant outperformance in property and short tail last year in the third quarter, along with the closeout, that that looks like a loss ratio that's sustainable.
Speaker Change: Okay, that's all.
Speaker Change: Yeah, that's my my follow up. I guess would be Peter just building upon that comment as you view the market conditions out over the next year. How do you expect the mix to shift between property and casualty relative to where it is today?
Speaker Change: It's hard to tell because I...
Speaker Change: As I mentioned before, I think the property slowdown in terms of rate increases should start to reverse as you get to next year because
Speaker Change: there's so much net that's been retained by insurance companies that they're not getting the appropriate risk-adjusted returns for the cat loss at the low return periods and the increased frequency and severity. So I think that's going to reverse. Casualty...
Speaker Change: is very strong. And, you know, Don, it went into length on excess and surplus lines. And then also, you know, we're seeing slowdown in financial lines. And so I think that the overall index
Speaker Change: I think it's going to sustain. But we'll see when we get into the market and see what happens within particular property. But I'm optimistic, which is why I put some time into it in the prepared remarks, that we see a rate environment that's going to improve. I don't know, John, maybe just before the call ends.
Speaker Change: You can give a little bit of perspective in terms of where you see opportunities as we look at 2025 and international.
John Hancock: Yeah, thanks Peter. I'll try not to repeat everything you've said, but you're right, the dynamic between the first party lines and the third party lines is there across international as well, and we're seeing first party lines, we're still seeing good.
John Hancock: rate and price on property classes but for me a bit like Don with them with Lex you know we've got these jewels in Global Specialty and Talbot you know Global Specialty
John Hancock: We are the number one writer of business around the world. We're number one in energy, we're number one in marine, we're top three in aviation, we're number four in credit. And we're growing that business really well. You referenced in your prepared remarks, Peter, you know, 6% growth in the quarter, but actually huge growth in
John Hancock: energy, 25% new business growth in marine in the quarter. We're seeing a different dynamic at the moment where we've grown our international specialty book by 10% in the quarter. Talbot, again, another 6% growth, but the specialty lines at Talbot, the
John Hancock: products at Talbot is really renowned for political risk.
John Hancock: energy grown by 18%. If you look at, add that to the fact that submissions are 25% up in both Tolbert and Specialty. Our quote rates are higher, our bind rates are higher. We've got huge opportunity there and we're the best of the market at it so we'll still keep seeing the opportunity.
Speaker Change: That's great John, thank you very much and I agree.
John Hancock: Before I finally close, I do want to take a moment to thank Sabra for her many contributions at AIG over the past five years.
John Hancock: Sabra's always been willing to take on a variety of important and complex roles and in each instance she's always done everything she can to add significant value so thank you Sabra including the most recent role as CFO. We wish her nothing but the best in her future endeavors as we welcome Keith Walsh as our new CFO.
John Hancock: I'd also like to thank all of our colleagues around the world for their continued dedication, commitment, and teamwork in execution, and I want to thank everybody for joining us today. Have a great day.
Speaker Change: Thank you for your participation. This does conclude the program. You may now disconnect. Good day.
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