Q4 2024 American International Group Inc Earnings Call
Speaker Change: Good day and welcome to AIG's fourth quarter and full year 2024 financial results conference call. This conference is being recorded. Now at this time I'd like to turn the conference over to Quentin McMillan. Please go ahead.
Quentin Mcmillan: Thanks very much, Michelle, and good morning. Today's remarks may include forward-looking statements which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based on management's current expectations. AIG's filings with the SEC provide details on important factors that could cause actual results or events to differ materially.
Quentin Mcmillan: Accept as required by applicable securities laws, AIG is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change.
Quentin Mcmillan: Today's remarks may also refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement, and earnings presentation, all of which are available on our website at AIG.com.
Quentin Mcmillan: Following the deconsolidation of Corbridge Financial on June 9, 2024, the historical results of Corbridge for all periods presented are reflected in AIG's consolidated financial statements and discontinued operations in accordance with U.S. GAAP.
Quentin Mcmillan: Additionally, in the fourth quarter AIG realigned its organizational structure and the composition of its reportable segments to reflect changes in how AIG manages its operations, which our Chief Financial Officer Keith Walsh will discuss in detail during his remarks.
Quentin Mcmillan: Finally, today's remarks related to AIG's adjusted after-tax income for diluted share, as well as general insurance results including key metrics such as underwriting income, margin, and net investment income are presented on a comparable basis.
Quentin Mcmillan: which reflects year-over-year comparison adjusted for the sale of crop risk services and the sale of validus re as applicable.
Quentin Mcmillan: Net premiums written and net premiums earned are also presented on a comparable basis, which reflects year-over-year comparison on a constant dollar basis and adjusted for the sales of crop risk services, validus re, and the global personal travel and assistance business as applicable.
Quentin Mcmillan: We believe this presentation provides the most useful view of our results and the go-forward business in light of the substantial changes to the portfolio since 2023.
Quentin Mcmillan: Please refer to pages 37 through 39 of the earnings presentation for reconciliation of such metrics reportable on a comparable basis. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino.
Quentin Mcmillan: Good morning and thank you for joining us today to review our fourth quarter and full year 2024 financial results.
Speaker Change: Following my remarks, Keith will provide additional perspectives on our financial results and then we'll take your questions.
Speaker Change: Don Bailey and John Hancock will join us for the Q&A portion of the call.
Speaker Change: Before I begin, on behalf of all of us at AIG,
Speaker Change: I want to acknowledge the devastating impact of the recent wildfires in California on families, communities, and the businesses affected.
Speaker Change: Our local teams remain on the ground in California, providing critical expertise and support to our customers and partners.
Speaker Change: This tragic event serves as a stark reminder of the escalating risks
Speaker Change: elevate a catastrophe landscape and the complicated evolving environment that we operate in.
It also underscores AIG's purpose.
Speaker Change: to help our customers and clients navigate these challenges with resilience in rebuilding communities and restoring businesses.
Speaker Change: Let me take a moment to cover what I will walk you through during my remarks this morning.
Speaker Change: Third, I will provide an overview of the full year financial results for AIG and our general insurance business.
Speaker Change: Fourth, I will comment on the reinsurance market, including the January 1 renewals, and provide some observations on the impact of the recent California wildfires.
Speaker Change: And lastly, I'll provide an update on the progress we have made on our capital management strategy.
Speaker Change: our path to achieving a 10% plus core ROE and how we are positioning the company for 2025.
Let's begin with the fourth quarter results.
Speaker Change: We recently announced a realignment of our general insurance business into three segments, North America Commercial, International Commercial, and Global Personal.
All of our comments will be aligned to these segments.
Speaker Change: During the quarter, we continued to deliver exceptional underwriting results, and we maintained rigorous expense discipline.
Speaker Change: General Insurance reported strong net premiums written of 6.1 billion, an increase of 7% year-over-year, led by 8% growth in global commercial lines.
Speaker Change: Global commercial generated new business of 1.1 billion, a 16% increase year over year, along with continued strong retention of 86% across the portfolio.
Speaker Change: Adjusted after-tax income per share grew 5% year-over-year to $1.30 per share.
The calendar year combined ratio was 92.5%.
Speaker Change: and the Axoneer combined ratio, excluding catastrophes, was 88.6%, which was an outstanding result.
2024 was a terrific year of accomplishments for AIG.
Speaker Change: during which we not only deliver strong financial performance but also successfully executed significant strategic and operational initiatives.
Speaker Change: We deliver disciplined growth in our businesses with a primary focus on risk-adjusted returns supported by our underwriting expertise.
Speaker Change: We reshaped the portfolio, including divesting a number of non-core businesses.
Following the sale of Validus Re in November of 2023,
Speaker Change: We close on the sale of the global individual personal travel insurance business in December of 2024 to further position us for the future.
Speaker Change: While these divestitures helped to further simplify AIG, the biggest accomplishment of the year was the deconsolidation of CoreBridge Financial.
Speaker Change: The separation was a four-year journey during which we strategically positioned CoreBridge for its future while creating a new capital structure for AIG.
Speaker Change: Some of the major milestones of the core bridge journey included establishing a very important partnership with Blackstone. Through an initial 9.9% sale in 2021. Executing the largest US IPO in 2022.
Speaker Change: setting up a strategic asset management partnership with BlackRock, divesting non-core foreign businesses,
Speaker Change: Thank you very much. Have a good day. Have a good weekend.
Speaker Change: completing five successful secondary offerings, two of which were in 2024, and culminating in the fourth quarter with AIG's sale of a 22% stake in Corbridge for $3.8 billion to Nippon Life, securing another strategic partner for the company.
Speaker Change: With the accounting deconsolidation of Corbridge, AIG is now a less complex and more streamlined global business.
Speaker Change: AIG Next was another operational accomplishment in the year which further supported our journey to make the company leaner, weave the organization together, and reduce expenses.
Speaker Change: We exited 2024 achieving $450 million in run rate savings as part of the program and we expect the remaining benefits to be realized in the first half of 2025.
Speaker Change: We also continue to successfully execute on our capital management strategy in a very disciplined manner with nearly $10 billion of actions in 2024.
Speaker Change: AIG reduced shares outstanding by 12% and increased the quarterly dividend per share by 11%, resulting in the return of $8.1 billion of capital to shareholders.
Speaker Change: We received over $4 billion in dividends from our subsidiaries due to the improved profitability of our operations.
We further reduced our debt-to-total capital ratio to 17%.
Speaker Change: And we ended the year with $7.7 billion of parent liquidity.
Speaker Change: Our capital management actions to date have provided us with tremendous financial flexibility.
Speaker Change: Another strategic accomplishment in 2024 was the delivery of AIG's first generative artificial intelligence large language model powered solution to support business growth.
Specifically, we implemented AIG Underwriter Assist.
internal AIG data sources
Speaker Change: and external research in minutes to support underwriter review of submissions.
Speaker Change: To support and advance our Gen-AI aspirations, we've cultivated an ecosystem of top-tier technology partners, including Palantir, Anthropic, and AWS in support of an agentic architecture operating model that allows for maximum flexibility.
Speaker Change: We also launched the Reinsurance Syndicate 2478 at Lloyds through a multi-year strategic relationship with Blackstone as part of AIG's Outwards Reinsurance Program.
Speaker Change: Thank you for watching. We hope you enjoyed it. Please subscribe to our channel. And if you liked our video, click the thumbs-up button and leave a comment. Also, check out our other videos over here.
Speaker Change: The syndicate began underwriting on January 1, 2025, and now serves as a key component of AIG's reinsurance strategy, which I will go over in more detail later.
Speaker Change: Turning to the financial results for the full year 2024, adjusted after-tax income was $3.3 billion, or $4.95 per diluted share, an increase of 28% year-over-year.
The improvement was primarily driven by stronger underlying underwriting results.
Speaker Change: expense reduction benefits from AIG Next, an increase in net investment income, and the execution of our balanced capital management strategy.
General Insurance delivered terrific financial performance for 2024.
Speaker Change: For the full year, net premiums written were $23.9 billion, a 6% increase year-over-year.
Speaker Change: Net premiums earned were $23.5 billion, a 7% increase year over year.
Speaker Change: The action year combined ratio as adjusted was 88.2%, which marked the sixth consecutive year of improvement, largely driven by the GOE ratio.
Speaker Change: The full-year general insurance combined ratio was 91.8%. This was the third consecutive year of a sub-92 combined ratio.
Speaker Change: Prior year reserve development, net of reinsurance and prior year premium was 289 million, a benefit of 1.4 points to the loss ratio.
Speaker Change: General Insurance full year underwriting income was $1.9 billion, roughly in line with the prior year, despite higher catastrophe losses.
Speaker Change: In global commercial, net premiums written of $16.8 billion increased 7% year-over-year.
North America commercial grew net premiums written by 9% year-over-year.
Speaker Change: Lexington grew net premiums written by 14% fueled by robots new business of 1.1 billion and a 42% increase in submissions year-over-year and that was balanced across all lines.
Speaker Change: Retail casualty grew net premiums written by 11%, excluding the closeout transaction we mentioned in the third quarter. Our portfolio continues to benefit from a strong rate environment.
Speaker Change: High retention of our existing portfolio at 93%, and we have select opportunities in new business.
Speaker Change: International Commercial Group net premium is written by 4% year-over-year driven by energy at 13%, retail property at 11%, and Talbot at 7%.
Thank you for watching!
Speaker Change: Global personal group net premium is written by 3% year-over-year driven by international personal auto at 8% and our high net worth business at 6%.
Speaker Change: I would now like to turn to reinsurance and provide some observations on the market and an update on AIG's reinsurance renewals at January 1 of this year.
Overall, AIG had a very strong 1-1 renewal season.
Speaker Change: Since the reinsurance market's major reset on January 1 of 2023, our consistency in strategy, placement, and execution has positioned us very favorably.
Speaker Change: Benefiting from an environment of higher retentions and commensurate pricing increases,
Property Reinsurers sought to deploy more capital
Speaker Change: But we're predominantly focused on upper layers with more remote return periods.
Speaker Change: Depending on loss activity, limited additional demand led to risk-adjusted rate reductions that were consistent with expectations.
Speaker Change: with the bottom catastrophe layers renewing flat to down 5% and upper catastrophe layers receiving reductions of 10 to 15 percent.
Speaker Change: I want to provide some context and observations on the changes in the market as a result of the increase in reinsurance retentions, which I've mentioned on previous calls. It's creating an interesting dynamic for the market in 2025.
Speaker Change: One insightful statistic from an AON study of over 150 companies over the past 10 years is that retentions have risen significantly around the world with U.S. attachment points on average increasing by 280%.
Speaker Change: As a reminder, in 2024, insured loss from natural catastrophes was approximately $145 billion, the sixth costliest on record, and this compares to the average for the last five years of $140 billion.
Speaker Change: With the increased retentions and increased catastrophe activity, much more of the risk is now being retained by insurance companies.
Speaker Change: In 2023 and 2024, primary insurance carriers are estimated to retain approximately 90 percent of the insured loss from natural catastrophes.
with the reinsurance industry absorbing 10%.
Speaker Change: Contrast this with the period prior to 2023, reinsurers would often share a significantly higher proportion of the insured loss, with the distribution of losses between insurers and reinsurers at approximately 50-50 on average.
Meanwhile...
Speaker Change: AIG is focused on maintaining lower excess to loss attachment points.
Speaker Change: including meaningful aggregate coverage to manage frequency of loss tailored to our geographic exposure and to the type of perils that we are exposed.
Thank you for watching!
Speaker Change: Taking a closer look at wildfires and how the markets changed.
Speaker Change: The average annual insured loss from 2000 to 2024 was approximately $4 billion globally, of which the U.S. is the majority at $3.5 billion.
Speaker Change: Narrow that period to the last 10 years, and average annual losses from wildfires have roughly doubled to around $8 billion, of which $7.4 billion has occurred in the United States.
Speaker Change: Insured loss estimates for the California wildfires are currently coalescing around $40 billion, with some estimates from credible catastrophe experts
reaching as high as $50 billion.
Speaker Change: The economic loss is estimated to be in excess of $250 billion, producing a protection gap of as much as 80%.
Speaker Change: Contrast that to the top 10 largest insured cat events on record where insurance has typically covered 40 to 50 percent of the economic loss.
Speaker Change: As a point of reference, insurance covered approximately 50% of the economic loss from Hurricane Katrina, the largest natural catastrophe event this century.
Speaker Change: The California wildfires demonstrate the increased loss from secondary perils and the magnitude of tail events that are not captured well in modeling.
Speaker Change: In a month with one of the lowest model probabilities of loss, the California wildfires alone would make the first quarter of 2025 the second most costly first quarter for natural catastrophes on record.
Speaker Change: Fifteen years ago, adjusting for inflation, $100 billion was considered the benchmark for an outsized cat year.
Speaker Change: But with the last eight years averaging more than $140 billion, this thinking is clearly outdated.
Speaker Change: If you assume the upper end of the range for the California wildfires, taking a $50 billion loss pick, adding the average annual insured loss for the past 8 years, and assuming we have an active but not abnormal wind season.
Speaker Change: which is realistic given the 2024 hurricane season experience and ocean temperatures are the warmest on record, 2025 could be a year of more than 200 billion of insured catastrophe losses. This could recalibrate the entire industry.
AIG reduced our overall California exposure beginning in 2022.
Speaker Change: This decision, coupled with our 2025 reinsurance structure, has effectively reduced our exposure, such that the expected loss to AIG from the recent wildfires is approximately $500 million.
before reinstatement premiums and barring any unforeseen additional developments.
Speaker Change: Outcomes at 1-1. We successfully maintained our prior objectives, our reinsurance purchasing strategy.
to preserve and optimize capital.
Speaker Change: and enhance the quality of earnings through active management of the volatility of our underwriting results.
Speaker Change: Starting with our property catastrophe placements, our core commercial North America retention of 500 million remains unchanged in nominal terms for the third consecutive year despite growth in the underlying portfolio.
Speaker Change: We also expanded coverage and maintained our core international occurrence attachments.
Speaker Change: and renewed our dedicated occurrence tower for a high net worth business which attaches at $200 million.
Speaker Change: creating a specific non-peak section and expanding the coverage for the high net worth portfolio.
Overall, for North America, depending on loss distribution,
Speaker Change: AIG's modeled net first loss exposure including the impact of reinstatement premiums is comparable to 2024 and our second and third event exposure is materially lower following this renewal cycle.
Speaker Change: For all of our major proportional treaties, we were able to improve or maintain our Seating Commission levels, a strong recognition of our underwriting expertise.
and our position as a market leader across multiple classes.
Speaker Change: We were also able to establish two new proportional treaties to support the high net worth portfolio.
Speaker Change: taking 30% of our homeowners and auto portfolios through Quartershare Reinsurance.
Speaker Change: Casualty remains an area of caution for many reinsurers, with appetite generally diminished.
Speaker Change: They are highly selective of the insurance companies they support, and overall, the casualty renewals were more orderly for the companies that had strong underwriting portfolios.
Speaker Change: We were pleased with the successful renewal of our core Casualty Treaties at favorable terms.
Speaker Change: This renewal cycle again signals the strong external industry recognition that AIG continues to be a leader in the casualty market.
Speaker Change: We remain optimistic on the outlook for our casualty portfolio and see considerable opportunities ahead while being cautious and very focused on maintaining our high underwriting standards.
Speaker Change: Also of significance for AIG at 1-1 was our launch of a new dedicated reinsurance syndicate at Lloyd's supported by funds managed by Blackstone.
Speaker Change: This pioneering structure, announced in December 2024, is an example of how insurance risk can be directly connected to sophisticated investors to generate attractive returns for both parties.
Speaker Change: The syndicate provides AIG with a long-term meaningful reinsurance partner and an additional source of fee income.
Speaker Change: Blackstone has access to a high-quality, well-diversified underwriting portfolio with the ability to generate attractive returns by taking a sizable participation in the majority of AIG's Outward Reinsurance Treaties at market terms.
Speaker Change: We're pleased to partner with a leading global asset manager on its innovative structure.
Speaker Change: Our reinsurance strategy has played a pivotal role in our journey to establish AIG as an industry-leading global P&C underwriter.
Speaker Change: We're grateful for the long-term support and partnership of the industry's leading reinsurers, which has helped position us where we are today.
Speaker Change: Turning to capital management, we continue to execute very well on our balance and discipline strategy.
Speaker Change: We made major progress in 2024 and in many ways exceeded expectations.
Speaker Change: As we outlined last year, our guidance was to repurchase $10 billion of shares in 2024 and in 2025.
Speaker Change: The current guidance is expected to bring us within our target share count range of 550 to 600 million shares.
Speaker Change: We have $3.4 billion of the $10 billion guidance that I provided remaining for 2025.
We will likely exceed this guidance.
Speaker Change: and we have over 5.6 billion dollars remaining on our current share repurchase authorization.
Speaker Change: We expect to return to more normalized levels of share repurchases as we enter 2026, assuming we have no further sell downs of CoreBridge or other additional sources of liquidity.
Speaker Change: We ended the year with a very strong parent liquidity of $7.7 billion.
Speaker Change: Additionally, we do not anticipate taking any actions that would significantly affect leverage in 2025.
Speaker Change: We are committed to reviewing our dividend annually and anticipate that we will increase our dividend in 2025 in line with the decrease in our share count over the past year, subject to AIG board approval.
Speaker Change: Going forward, our key focus is on profitable growth and allocating capital to the best opportunities for the most attractive risk-adjusted returns.
Speaker Change: Our very early forecast indicates we're off to a strong start for 2025, and barring any unforeseen developments, we expect to achieve meaningful organic growth driven by our global commercial business and the benefits of our restructured reinsurance program.
Speaker Change: As a result of our disciplined capital management, combined with our sustained underwriting excellence, and continued focus on expense management, we're well on track to deliver a 10% plus core operating ROE for the full year 2025.
Speaker Change: We have several ways in which we can deliver on this commitment. These are maintaining our strong underwriting results with a focus on improving global personal.
Improving our Investment Income Yields
Speaker Change: executing on a simpler leaner business model across AIG and continued balanced capital management.
Speaker Change: In summary, I'm very pleased with our outstanding fourth quarter and full year 2024 performance.
Speaker Change: 2025 is a new chapter for AIG and we're moving forward with strong momentum.
Keith Walsh: We continue to differentiate ourselves with deep industry expertise and disciplined focus on underwriting excellence and outstanding operations and claims capabilities which drive exceptional value for our clients, partners, and stakeholders. With that, I will turn the call over to Keith.
Keith Walsh: Thank you, Peter. This morning I will provide details on fourth quarter results for general insurance, net investment income, and other operations, as well as key balance sheet items.
Keith Walsh: I would like to begin by addressing a few changes in our financial reporting.
Keith Walsh: As Peter mentioned, we have realigned our general insurance business into three reporting segments.
North America Commercial, International Commercial, and Global Personal.
Keith Walsh: Global personal lines have been consolidated into a single reporting segment.
This brings together our global accident and health.
Personal home and auto.
Global Warranty and Services, and High Net Worth Businesses.
Thank you for watching!
Keith Walsh: Along with our new reporting segments, we have updated the product line net premiums written disclosure on page eight of our financial supplement to give more transparency into the underlying trends in our businesses.
Thank you for watching!
Keith Walsh: The three segments and updated product line disclosure are reflected retrospectively in AIG's 2024 fourth quarter and full year financial results.
Keith Walsh: Additionally, we have streamlined other operations to include activities only related to having a global regulated parent company.
Keith Walsh: and now exclude the results of runoff businesses from adjusted pre-tax income.
Keith Walsh: We believe these changes enhance the clarity of our financial disclosures and provide a better representation and alignment of our core business.
Keith Walsh: Historical results have been recast to reflect these changes with de minimis impact to operating EPS.
Keith Walsh: Other operations now largely consists of net investment income from our parent liquidity portfolio.
Corbridge Dividend Income
Turning to our fourth quarter general insurance results.
Adjusted Pre-Tax Income, or APTI, was $1.2 billion.
Keith Walsh: In North America commercial, net premiums written increased 9% year over year, driven by strong new business, which grew 17% with retention of 85%.
Keith Walsh: International commercial net premiums written increased 7% year over year with new business growth of 15% and excellent retention of 88%.
Keith Walsh: In Global Personal, net premiums written increased 1% on a constant currency basis.
The sale of the global personal travel and assistance business
Keith Walsh: which closed in early December, was about a four-point headwind to the year-over-year comparison.
Keith Walsh: Adjusting for that, growth was 5% in the quarter on a comparable basis driven by 16% growth in our global high net worth business.
Thank you for watching!
Keith Walsh: The sale of the global personal travel business will have an impact on the global personal segment in 2025.
Keith Walsh: For full year 2024, this segment had $7.1 billion of net premiums written.
Keith Walsh: When modeling 2025, the sale of the global travel business will remove approximately $720 million of net premiums written.
Keith Walsh: This is a roughly 10 percentage point growth impact for the segment.
Keith Walsh: General insurance underwriting income for the quarter was $454 million, a $156 million decrease from the prior year quarter, driven entirely by higher catastrophe losses.
Keith Walsh: General Insurance calendar year combined ratio was 92.5 percent. The accident year combined ratio, as adjusted, was 88.6 percent, a 30 basis point increase from the prior year quarter.
Keith Walsh: This was driven by a slight increase in the accident year loss ratio while the expense ratio remained flat.
despite absorbing more AIG parent expenses.
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Keith Walsh: Catastrophe losses were 325 million or 5.5 points on the loss ratio.
Keith Walsh: This includes $224 million of losses from Hurricane Milton and an adjustment for prior quarter's events, largely from Hurricane Helene, which occurred on the final day of the third quarter.
Thank you for watching!
Turning to reserves in our detailed valuation reviews or DVRs.
Keith Walsh: This quarter, General Insurance had $102 million of favorable prior year development, including $34 million from the ADC amortization.
Keith Walsh: 16 million from our fourth quarter DVRs and 52 million from non-DVR adjustments predominantly recognition of AVE on U.S. short tail lines.
Keith Walsh: The fourth quarter's DVRs covered the remaining 10% or approximately $4 billion of our total lost reserves, focusing on the remaining portion of U.S. financial lines, global personal lines, Canada, and Glatfelter.
For more information visit www.FEMA.gov
Keith Walsh: The favorable prior year development was primarily driven by Canada Casualty and U.S. E&O.
Keith Walsh: We conduct a comprehensive DVR annually for each product line across our 40 billion of reserves.
Keith Walsh: While DVRs are spread across quarters, we have a robust year-round process on our entire book in addition to our quarterly DVRs.
Keith Walsh: Going forward, our comments will focus less on reporting the DVR outcomes and more on our overall reserve analysis, which reflects AVE, claims diagnostics, and rate monitoring across all lines and geographies.
Thank you for watching!
Keith Walsh: One additional item I would like to discuss is a provisional reserve we created in 2022 in response to the potential uncertainty with inflation and other variables in the post-pandemic macro environment.
Keith Walsh: This provision, which is included in IBNR, has been carried in the lines that we viewed as most susceptible to rising inflation with a large portion booked in our workers' compensation reserves.
Keith Walsh: This year, we undertook a thorough review of the uncertainty provision, which was set above the loss picks from our actuarial reviews and refined our analysis, including its allocation among our lines of business.
Keith Walsh: The uncertainty provision did not reflect any emergence, and we have maintained the overall estimate. However, we have decided to reduce the provision in excess workers' comp and reapportion approximately $150 million of the provision within excess casualty.
Keith Walsh: We elected to move this portion of the reserve to excess casualty as the development factors and the length of the tail can drive a wider range of outcomes on our reserves.
Keith Walsh: To be clear, our traditional reserve methods are not indicating any emergence in excess casualty, but we felt, given the nature of the provision, it was more appropriate to be situated within this line.
Keith Walsh: As a reminder, our reserving philosophy is to react to bad news quickly and wait to recognize good news over time as we monitor developments.
Keith Walsh: Moving on to rates and pricing. Fourth quarter global commercial lines pricing which includes rate and exposure increased 5% year-over-year excluding workers compensation and financial lines.
Keith Walsh: In North America commercial, renewal rate increased 3% year-over-year, or 7% if you exclude workers' compensation and financial lines.
Keith Walsh: Exposures increased 2% year-over-year with an all-in pricing change above loss cost trend.
Keith Walsh: Property market conditions were under pressure in the fourth quarter due to increased competition across both the admitted and E&S markets while the underwriting margin remained healthy.
Keith Walsh: supported by the cumulative rate increases over the past several years and our disciplined approach.
Keith Walsh: In North America casualty lines, rate continued to outpace lost cost trend with increases in the mid-teens in wholesale and excess casualty.
Keith Walsh: In North America financial lines, we continue to experience headwinds, but see indications that rate reductions are moderating.
Keith Walsh: In international commercial, overall pricing was flat, or up 2% excluding financial lines.
Keith Walsh: While rate is below trend, we feel good about our book given we have had over 60% cumulative risk adjusted rate since 2018.
Keith Walsh: Our well-diversified portfolio allows us to navigate different market conditions effectively.
Keith Walsh: prioritizing lines of business that offer the most compelling risk-adjusted returns while upholding our underwriting standards.
Keith Walsh: For the full year 2024, excluding workers compensation and financial lines, global commercial lines pricing, which includes rate and exposure, increased 6%, with 8% in North America and 4% in international.
Keith Walsh: Turning to other operations, fourth quarter adjusted pre-tax loss was $150 million, which improved 34% year over year.
Keith Walsh: This was primarily driven by lower GOE reflecting AIG NEXT benefits.
as well as incremental movement of GOE into general insurance.
Keith Walsh: We continue to realize the benefits of AIG Next and push non-public company related expenses into the business.
Keith Walsh: We expect corporate GOE expenses to migrate towards approximately a $90 million per quarter run rate over the course of 2025.
Keith Walsh: Interest expense improved 10 million year-over-year as a result of our liability management which reduced total debt by 1.6 billion in 2024.
Keith Walsh: One other item I want to discuss is a runoff business blackboard.
Keith Walsh: In the fourth quarter, we increased the prior accident year reserves for Blackboard by $112 million to reflect loss activity that has been well above what was expected.
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Turning now to investment income.
Keith Walsh: For the full year 2024, net investment income on an APTI basis was $3.5 billion, up 13 percent from 2023, primarily driven by core bridge dividends, an increase in short-term investment income, and higher reinvestment rates on fixed maturities.
Keith Walsh: Fourth quarter net investment income on an APTI basis was $872 million, largely unchanged year over year.
Keith Walsh: General insurance net investment income was $779 million, including income on fixed maturities, loans, and short-term investments of $720 million, and alternative investment income of $72 million.
Keith Walsh: Other operations net investment income was 93 million consisting of income from our parent liquidity portfolio of 64 million and Corbridge dividend income of 29 million.
Thank you for watching!
Keith Walsh: During the fourth quarter we continued to benefit from higher reinvestment rates on the fixed maturity and loan portfolio.
Keith Walsh: The average new money yield of 5.38% was roughly 175 basis points higher than the sales and maturities in the quarter.
Keith Walsh: The annualized yield on the fixed maturity and loan portfolio, excluding calls and prepayments, was 3.92%, up four basis points year-over-year or three basis points sequentially.
Keith Walsh: Fourth quarter alternative investment income was 67 million, an increase of 26 million year-over-year driven by improved private equity performance partially offset by lower hedge fund income owing to our strategy to reduce exposure.
Keith Walsh: Private equity yielded 6.42 percent for the quarter below our long-term expected return of seven and a half percent.
Keith Walsh: The makeup of our private equity portfolio is a little over 25% real estate and with the current macro environment we expect pressure from this portion of the portfolio to continue through 2025.
Keith Walsh: Turning to tax, the adjusted effective tax rate for the fourth quarter and full year was 24.6 percent.
Keith Walsh: For 2025, we expect the adjusted tax rate to be in line with 2024, but may vary based on the geographic mix of income.
Keith Walsh: We finished 2024 with a very strong balance sheet. Book value per share was $70.16 at year end, up 8% from December 31st, 2023, mainly due to the favorable impact of lower interest rates on AOCI and reduced shares outstanding.
Keith Walsh: Adjusted book value per share was $73.79, down 6% from year-end 2023, primarily due to the impact of core bridge deconsolidation.
Keith Walsh: Core operating ROE was 9.1% in the quarter and for the full year.
Keith Walsh: As Peter laid out, we are committed to achieving our target of a 10% plus core operating ROE for the full year 2025.
Keith Walsh: As Peter mentioned, we had a substantial $6.6 billion return to shareholders in 2024 through share repurchases and are well on our way to completing our guidance of $10 billion of repurchases in 2024 and 2025.
Keith Walsh: Through February 7th, we have repurchased $952 million of shares year-to-date in 2025.
Keith Walsh: We are proud of the significant progress we've made in 2024 and the ability to deliver outstanding core operating results while successfully executing significant transformation initiatives. With that, I will turn the call back over to Peter.
Thank you, Keith and Michelle. 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 hasn't been answered and you'd like to remove yourself from the queue, please press star 1 1 again.
Speaker Change: Our first question comes from Alex Scott with Barclays. Your line is open.
Alex Scott: Good morning. The first one I have for you is on the core ROE that you gave. I just wanted to confirm that that's including the wildfire impact. It looks like it's running a bit better than expected.
Alex Scott: you know I would have expected based on the combined ratios that you've talked about in the past and corporate expenses and so forth so I was just interested if you'd opine at all on you know maybe some of the things that that you're running ahead on or that are improving relative to some of those comments you've made in the past. Thanks.
Yes, certainly, Alex. And yes, we are confirming...
Alex Scott: The 10% plus ROE, including the, you know, 500 million wildfire that we had in January, if I could spend a second, you know, I think we've done an exceptional job.
Alex Scott: You know what we do budget for you know AAL over the last couple years relative to our overall experience
It's been exactly where we anticipated, even with...
Alex Scott: elevated activity. So this is no different. I mentioned on the call, you know, that we're going to take, you know, first event losses around the same with reinsurance that we did in 2024, but second and third events will be will be less. And so that's how we structured it. And we are
Speaker Change: confirming guidance on the 10% including what happened in January. I think Keith noted that you know we have a lot of different ways in which we can
You know sort of drive
Speaker Change: improvement in terms of earnings. I did as well in my prepared remarks. You know, we're really pleased with the commercial portfolio and how it's performed.
Speaker Change: on a combined ratio basis. We just continue to, I think, you know, elevate our overall performance.
Speaker Change: I have singled out personal because I think that combined ratio is not where any of us want to be. We consolidated that under one leader, John Hancock. He's shown exceptional leadership in what he's done with the commercial portfolio and international, and I think it's going to give us a much better line of sight on the overall portfolio in terms of how we can improve it, which we fully expect to do. I think there's opportunities in NII, further capital management, and I think we reconfirmed what we're doing on return of capital to shareholders. So I think we have a lot of
very positive momentum and, you know, want to confirm guidance.
Thank you.
Do you have a follow-up, Alex?
Alex Scott: As a follow-up, I'd just be interested in some of the areas you're targeting toward organic growth, and maybe in particular, your updated view on price adequacy, just given some of the declines in property price in the U.S.
Yeah, maybe also on casualty
Thank you.
Speaker Change: Okay, I'm going to have John Hancock and Don Bailey talk a little about the growth because they've done an exceptional job in terms of
Speaker Change: and this is complementing their efforts, is that, you know, we've just done a tremendous job in terms of client retention, you know, focusing on an underwriting culture of maintaining and improving profitability, and so like we deploy capital where we think we have the best opportunities for improved risk-adjusted returns.
Speaker Change: and they've done an exceptional job on new business and targeting parts of our business where we think we can have those outsized returns over time. And I think that's how you've seen the portfolio shape. So John, why don't I start with you in terms of international and maybe give us a little bit of...
insight in terms of the growth.
Speaker Change: Thanks Peter and Alex. Growth through retention and new business was strong in the quarter. Peter and Keith called out a lot of that in their opener remarks, so I won't repeat it now.
Speaker Change: What I will say is, you know, we're working from such a strong base in this commercial portfolio in international. And when we look at where we've been growing, you know, if you look at the quarter, there's a lot of seasonality across international. You know, for example, in Q4, 50%, more than 50% of our net premiums come from just two lines. We like them, global specialty and financial lines, but that's not the full year mix. So I think looking at
Speaker Change: growth looking at new business on quarter on quarter isn't always the most insightful way and Q4 is obviously the end of the year as well so I think it's a good time to reflect on what we've been doing the whole of 2024 and talk about that momentum that we have been building.
Speaker Change: If I look at the full year, you know, Keith called it out, 4% growth in the year across international commercial, renewal retention in the full year 89%, I'm really, really pleased with that on such a good book of business. And new business for the year, more than $2 billion of new business during the year in international commercial. Again, a great outcome.
and that matters to a lot of them.
Speaker Change: customers. And if I could, I know you asked about property specifically, if I could just call out two places where we've been working really hard with our distribution partners on being clear on risk appetite, building propositions that customer want, building strong opportunity pipelines. That's where we've been getting the growth momentum from and that's what we will see all through this year. There's too many areas to call out across international, but global specialty.
Speaker Change: Yeah, number of new business submissions up 24% year on year. Marine, absolutely outstanding at 46%.
Thank you.
Speaker Change: growth and some real high quality new business. The rating environment today, as Peter said earlier, is different to what it was in Q4, so we see lots of great opportunity all over and we'll build on that momentum.
Speaker Change: That's great, John. Thank you. Don, maybe I just want to have a little bit of a highlight of achievements in North America in terms of growth.
Don Bailey: Thank you, Peter. I'll break down the North American commercial numbers. For 2024, and you mentioned this, we grew net premiums by 9%.
driven by retention and our new business.
Don Bailey: We had strong retention of 91% in retail and 76% in wholesale. We also delivered impressive new business growth like John.
Don Bailey: in North America, 15% up on a year-over-year basis. And that's on top of 14% new business growth in 2023.
This growth is intentional, it's strategic, it's diversified.
Don Bailey: With the great work of the past few years in our portfolio, we came into 2024 with distribution engagement as a top priority for us in all the channels in which we operate, and it's paid off. Our new business was strong through all three channels, retail, wholesale, and alternative.
Don Bailey: With Lexington, we had another strong year. They represented 48% of our new business.
Lex Property, Casualty, Western World, all delivered.
Don Bailey: And there's a clear opportunity to harness the strong submission activity there to drive growth as we go forward. The rest of the new business was balanced across the portfolio. And finally, Peter, I'll just say this at the end, that our growth...
Don Bailey: Given our unique assets at AIG, we really are able to underwrite with great discipline within our risk appetites and target opportunities with attractive risk-adjusted returns. Thanks Peter.
Speaker Change: That's great, Don. John, thank you. I know that answer was, they were very thorough, but they're doing the work, and so I thought it'd be really helpful to hear from them. Next question.
Speaker Change: Thank you. Our next question comes from Myer Shields with KBW. Your line is open.
Myer Shields: Great, thanks. Peter, I was hoping you could walk us through how we should think about the impact of the artificial intelligence deployed in underwriting. I know it's simplistic to say how many loss ratio points would it move, but how should we think about it more broadly?
Speaker Change: Thanks, Mayor, and good morning. You know, for us, you know, I could spend...
Speaker Change: You know a meaningful amount of time talking about Gen AI and we fully intend to do that at Investor Day. Our focus has always been on, you know, driving growth.
Speaker Change: Certainly there's opportunities in contact centers and, you know, call centers and operational capabilities that through large language models, robotics, that we will gain efficiencies. But for us, it's all about ingestion of data.
Speaker Change: getting more qualified data to the underwriters in a fraction of the time.
And in order to do that...
Speaker Change: You know, you need to be very disciplined, sort of end to end. So how we ingest data from brokers and agents.
Speaker Change: how we define what data we want in the underwriting, you know, criteria when it gets to the underwriter.
Speaker Change: How do we load that into models, and how do we get more data from credible sources that may supplement the underwriter's decision making in order to continue to improve the portfolio? If I use Lexington as an example.
Speaker Change: In 2017 and 18, we received 40,000 submissions. This year, it's over 400,000.
Speaker Change: So it's more, you know, complex today than just building out algorithms to get to, you know, different industry groups or different classes of business. We want to get more to the underwriters real time. And so we've been doing this for the better part of 18 months. You know, I said we built out a really strong agentic ecosystem.
Speaker Change: with, again, data ingestion with Palantir, building out large language models with Anthropic, and using other reliable third parties to help us accelerate the modeling. So I think it's going to help us propel.
Speaker Change: top-line growth by getting more data, getting richer datasets, giving the underwriters more capabilities to underwrite, and having it done in a fraction amount of time and doing it at scale.
Speaker Change: Okay, thank you. That's very helpful. The second question is on the timeline for getting the high net worth personalized business to gross underwriting profitability. I don't know if there's anything you can share on that.
Thank you for watching!
Yeah, absolutely, Mayor. And.
Speaker Change: Look, I think we've been on that journey for a couple of years and everybody's been patient with the story.
We continue to improve the combined ratio.
Speaker Change: We continue to improve the loss ratio. If you look at global personal, the biggest contributor
Speaker Change: in terms of that improvement. It was primarily all the private client service or high network business. There was a significant improvement in the loss ratio and we expect that to continue. We have a balanced growth strategy with, you know, non-admitted as well as admitted and believe that.
Speaker Change: As we see more submission activity, which we are a non-admitted, that we're able to deploy, you know, our capital with more flexibility to be responsive to client needs. So, I'm thinking about structure, pricing, you know, the amount of limit that we can put out. And it's not only in peak zones, it's in non-peak zones. And so, we expect to see that continue to accelerate.
Speaker Change: We got to scale this year, and so we've renegotiated seating commissions with PCS, and so you'll see a meaningful improvement there, which should translate into overall expense ratio improvement and combined ratio improvement. And last I mentioned is that
We have tremendous partners that have joined us.
Speaker Change: support from, you know, great partners and improvement in expense ratio, and you'll see that contribute in 2025 to helping, you know, overall global personal improvement.
Okay, fantastic. Thank you so much.
Speaker Change: Thank you. Our next question comes from John Newsome with Piper Sandler. Your line is open.
John Newsome: Good morning, that's on the quarter. Two quick questions, one is
John Newsome: Are we at a point where there are aspirational areas of business that AIG is not in that you would be looking for either organic or integrating basis and I guess sort of relatedly on the other side of that question is
John Newsome: Where are we from a divesting of non-core businesses perspective? Are we pretty much done at this point?
John Newsome: Sure, thanks for the question. I'll start with the second one first. I think we are largely done.
John Newsome: I mean, I don't ever say never or always, but I think we now have the portfolio in a place where we like it, certainly on the commercial side, and now, you know, having one segment for global personal, we know we have work to do, but really like the mix of the portfolio, its global balance, and think that we can grow it. In terms of M&A,
John Newsome: Look, we're going to remain very disciplined. I always use the word when I get the question on the calls or I'm in front of you, it's around being, you know, it has to be compelling, which just means that it's either going to be a geography that's complementary that actually adds value to, you know, AIG and our clients.
John Newsome: products that we may not be in that we like and think that it's going to be accretive to ROE and how we grow our business. There are businesses that we have that have
John Newsome: scale, but additional scale could be, you know, quite compelling. And so we are, you know, looking at that businesses that may do that and accelerate. And of course, then there's, you know, complementary businesses that we may not be in that we think could be, you know, very added to the platform. So, you know, we have a very disciplined approach.
John Newsome: But I do want to say, I think we're at the size and scale where we don't need to add anything. You know, we are showing, and I think John and Don provided tremendous insight as to why we think we can grow, you know, the business organically. We have a really strong capital base, which we can grow into and believe that there's a path there. So I don't think it's an either or. I think we have now set the company up with enormous.
John Newsome: strategic and financial flexibility. We'll remain very disciplined as we look at inorganic, but we're very excited about the organic opportunities that are in front of us.
Speaker Change: Great, maybe as a second question, do you have any thoughts on the regulatory environment? Clearly lots of...
Speaker Change: As my grandmother would say, interesting things happening in California from a regulatory perspective. But broader, do you think there's some changes here that are coming, or do you think it's pretty status quo?
Thank you.
Insurance is complicated because we're regulated state-by-state and
Speaker Change: That makes every state a little bit different, right? And I think the ones that get the attention are going to be, you know, ones that have, you know, peak zone exposure, like we're seeing within California. And California is particularly complicated because I related almost to Japan.
Speaker Change: geography that has two major perils that drive catastrophe results and so I was in Japan's typhoon quake California's quake and now wildfire and but there's
regulators, we work very closely with them.
to try and
be helpful and constructive on the changes that have happened.
Speaker Change: looking at modeling, looking at lost costs, looking at cost of goods sold, and looking at ways in which we can be more responsive.
Speaker Change: to client needs, and I think that in California, we just saw that.
Thank you.
You know, the modeling is flawed.
Speaker Change: It doesn't necessarily always take into account tail events. There's not a lot of model losses north of, you know, $40 billion. And so, therefore, it becomes, you know, very complicated. And I don't mean this in California, but we're now seeing it, which is, you know, some of these state...
you know, set up.
Speaker Change: sort of vehicles that become a market of last resort, sometimes become a market of only resort, and then they end up taking on a lot of aggregates. So I think we just need a reset in certain spots and I think like insurance companies
Speaker Change: that have technical capabilities, working very closely with regulators. I hope that we're going to position the businesses where we will have more flexibility in the future.
Thank you very much.
Yes, thank you.
Speaker Change: Thank you. Our next question comes from Michael Zerimsky with BMO. Your line is open.
www.mytrendyphone.co.uk
Great. Follow-up on the expense ratio.
Speaker Change: I heard the comments about seating commissions improving so that should
Speaker Change: be a positive going forward. You know, the expense ratio has been running a bit higher than expected for a while now. I mean, obviously, the loss ratio has been excellent. So, you know, that's the main focus. But just curious if you're willing to give any specific, more specific
Speaker Change: specific guidance on kind of what type of expense ratio level or acquisition expense ratio level we should be thinking about on a go-forward basis.
Speaker Change: Michael are we talking about PCS and high net worth or just general general insurance?
Sorry, I was talking about a whole company, General Insurance.
Speaker Change: Yes, so let me let me unpack I mean again, I know with AIG It's like, you know with the divestitures and a lot of the moving pieces from other operations into general insurance It's complicated, but I'm actually really pleased with
Speaker Change: what we've done on the expenses. I think we've remained incredibly disciplined. We focused on a lean parent, which just meant that there's simplicity, there's not a lot of expenses sitting in other operations, and there are going to be more in the business. So, if I actually take you through
Speaker Change: you know what happened if you look at you know our financial supplement you'll see 2.9 billion or thereabouts 2952 as sort of the expenses but if you get underneath that look AIG next the business was very
Speaker Change: proactive in getting expenses out. And so we would have gotten around 125 to 140 million out through.
Speaker Change: AIG next, but we've added in, you know, from other operations and other technology that would have sat in other operations almost 200 million dollars. And so, you know, the business has absorbed a lot of expenses as we reposition, you know, the company to have this lean parent.
Speaker Change: very transparent, not with a lot of expenses, and the business is absorbing it as we go. And so not only am I proud that they've been able to do that and we haven't had a blip, we also believe that there's opportunities to get more expenses out and the ratios to improve as we get through the rest of 2025.
Speaker Change: Okay, yeah quick follow-up just I know you you made some comments on the casualty marketplace I I'm not fast enough to update all the the pricing data you gave us which is always helpful but I'm curious you know are you
Speaker Change: Experiencing any acceleration in casualty pricing either you know excess or for retail and do you still feel that I feel like a couple quarters ago you mentioned this might be an area you're willing to play a bit of offense in?
Speaker Change: Yeah, so it's a great question. And again, when we look at rate across North America, international, it's, you know, it's an index. And so you don't always get, you know, line of sight, but we do see, you know, real opportunities in casualty. We're very cautious.
Speaker Change: But the rate environment is actually quite strong. I mean, in Lexington casualty, you'll start there. We had 14%, you know, rate in 2024 and retail excess casualty. We had 15%.
Speaker Change: That's the fifth year in a row of double-digit rate increases in retail excess casualty. It's above-loss-cost trend, so we feel like we're building margin, really strong retention. We've been able to reposition the portfolio as we've liked. We have an exceptional, you know, particularly in the U.S., leadership with Barbara Luck. I mean, we have the best underwriting team in the industry, and that's being demonstrated because clients are asking us to be on their business, help structure it.
Speaker Change: help with the terms and conditions so others will be active participants in the market. And so we're leading, we're underwriting really well, we've repositioned the portfolio, we've got great reinsurance support for severity.
Speaker Change: and we're getting right above lost cost. So, you know, I want to be very cautious and careful, but I also don't want to miss the opportunity to be an industry leader.
Thank you.
Speaker Change: Okay, I want to thank everybody for questions and your active participation today. In closing, I want to thank our AIG colleagues around the world for their continued commitment.
Speaker Change: teamwork and the significant contributions. I mean, we accomplish a lot every year and, you know, we try to capture for you today. And we really appreciate joining us today. And we look forward to sharing a lot more detail on March 31st during AIG's investor day. Have a great day.
Speaker Change: Thank you for your participation. This does include the program and you may now disconnect. Everyone have a great day.
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