Peter Zaffino
President & Chief Executive Officer at American International Group
.Good morning, and thank you for joining us. Following my prepared remarks, Mark will provide more detail on our financial results and other relevant updates to close out 2021. Shane Fitzsimons, who became AIG's CFO on January 1, will be available for Q&A, along with David McElroy and Kevin Hogan.
Today, I will cover 4 topics: First, an overview of General Insurance's fourth quarter and full year performance, where we continue to drive meaningful underwriting profitability improvement. I will also briefly touch on the 1/1 reinsurance renewal season. Second, I will review results from our Life and Retirement business, which continues to be a meaningful contributor to our overall results. Third, I will provide an update on our progress towards an IPO of Life and Retirement and operational separation of the business from AIG. And fourth, I will review our current plans regarding capital management.
Before turning to those topics, I want to take a few minutes to highlight some noteworthy achievements in 2021, which were significant for AIG. 2021 was a pivotal year and one in which our team executed on several strategic priorities. As you saw in our earnings release, adjusted after-tax income in 2021 was $5.12 per diluted share, representing a more than 100% year-over-year. We produced strong liquidity throughout 2021, which provided flexibility and allowed us to return $3.7 billion to shareholders through share repurchases and dividends. We also repurchased $4 billion of debt, which reduced our debt leverage by 380 basis points to 24.6%. Notwithstanding these actions, we ended 2021 with $10.7 billion in parent liquidity.
As I said on prior calls, the path we've taken to improve AIG and our portfolio in General Insurance, in particular, with a significant undertaking. In General Insurance, given the portfolio we started with in 2018, we needed to make fundamental changes. We quickly overhauled our underwriting standards and developed a culture of underwriting excellence, including significantly reducing gross limits.
To give you a sense for the magnitude of what we needed to do, we reduced gross limits by over $1 trillion in our Property, Specialty and Casualty businesses. In addition, we took a conservative approach to volatility by reducing net limits and exposure through strategic implementation of reinsurance. As a result of this strategy, since 2018 and through 2021, we've been able to grow net premiums written in Commercial by over $3 billion, while ceding an additional $2 billion of reinsurance premium to further reduce volatility and protect the balance sheet. At the same time, we improved the combined ratio, excluding CATs, by over 1,000 basis points. Simply put, today, we have a different portfolio with a markedly different risk profile, which we believe is significantly stronger by all measures.
Turning to Life and Retirement, we again had solid and consistent results throughout 2021, benefiting from product diversity within the business. Return on adjusted segment common equity was 14.2% for the full year. Throughout 2021, we also made tremendous progress on the separation of Life and Retirement from AIG. We're executing on multiple work streams to operationally separate the business, and we closed on the sale of 9.9% equity stake and transferred $50 billion of assets under management to Blackstone. Additionally, we achieved significant milestones at AIG 200 and remain on track to deliver $1 billion in run rate savings by the end of 2022 against the spend of $1.3 billion. I could not be prouder of what the team has accomplished. While we still have plenty of work ahead of us, it would be remiss of me not to recognize these accomplishments and the significant momentum we have heading into 2022.
Now, let me turn to our business results in General Insurance for the fourth quarter of 2021. Mark is going to go into more detail, but we had a terrific quarter to close out the year. In the fourth quarter, General Insurance net premiums written increased 8% overall on an FX-adjusted basis, with another strong quarter of 13% growth in Commercial, which was tempered somewhat by a slight contraction in Personal, with a 1% reduction in net premiums written. The growth in Commercial lines was balanced with 11% in North America and 16% in International. Personal Lines net premium growth contracted by 1% in the quarter due to a 5% reduction in International, driven by our repositioning of the Personal Property portfolio in Japan, offset by 17% growth in North America, which largely reflects less year-over-year ceded reinsurance.
Looking at fourth quarter profitability, I'm very pleased with the accident year combined ratio ex CATs, which improved 310 basis points year-over-year to 89.8%, the first sub-90% quarterly result since the financial crisis. This improvement was driven by Commercial, which achieved an accident year combined ratio ex CATs of 87.9%, a 380 basis point improvement year-over-year and the third consecutive quarter below 90%. Personal reported a 130 basis points of improvement in the accident year combined ratio ex CATs to 94.3%.
Pivoting to the full year 2021, we made enormous progress in improving the quality of the underwriting portfolio and driving growth throughout the year. Net premiums written grew 11% on an FX-adjusted basis, driven by Global Commercial growth of 16%. Growth in Commercial was particularly strong in both North America at 18% and International at 13%. We had very strong retention in our in-force portfolio with North America improving by 300 basis points and International improving by 500 basis points for the full year. Gross new business in Global Commercial grew 27% year-over-year to over $4 billion, with 24% growth in International and 30% in North America.
Turning to rate. Overall, Global Commercial saw increases of 13%, and strong momentum continued in many lines. In Global Personal, we had some growth challenges in this segment, but Accident & Health performed very well, and overall, we had a solid year with net premiums written up 1% on an FX-adjusted basis. These results also reflect less reinsurance cessions in our high net worth business and some growth in Warranty.
Turning to underwriting profitability for full year 2021. General Insurance's accident year combined ratio ex CATs was 91%, an improvement of 310 basis points year-over-year. The full year saw 140 basis point improvement in the accident year loss ratio ex CATs and 170 basis point improvement in the expense ratio, split evenly between the GOE ratio and the acquisition ratio. These positive results were driven by our improved portfolio mix, net earned premium growth, achieving rate in excess of loss cost trends, continued expense discipline, and the benefits we are receiving from AIG 200.
Global Commercial achieved an impressive accident year combined ratio ex CATs of 89.1%, an improvement of 410 basis points year-over-year. The accident year combined ratio ex CAT for North America Commercial and International Commercial were 91% and 86.7%, which reflected improvements of 450 basis points and 340 basis points, respectively.
In Global Personal, the accident year combined ratio ex CATs was 94.9%, an improvement of 120 basis points year-over-year, driven by improvement in the expense ratio. These notable combined ratio improvements across General Insurance reflected improved higher-quality Global portfolio driven by the strategic underwriting actions and strong execution, which have enabled us to shift our focus towards accelerating profitable growth in areas of the market where we see attractive opportunities. We are very pleased with these materially improved results, which provide tangible evidence of our successful underwriting strategy and the significant progress we have made.
Turning to January 1 renewals with respect to our ceded reinsurance, we were very pleased with the outcome of our reinsurance placements. While the markets presented significant challenges across the industry, with retrocessional limited along with other capacity issues, our reinsurance partners recognize the strength of our improved underwriting portfolio and reduced aggregation exposure, which translated to many improvements in our reinsurance structures, along with better terms and conditions. It's important to keep in mind that we placed over 35 treaties at 1/1, with over 65 discrete layers and over $12 billion of limit placed and we cede over $3 billion of premium in the market.
As you can imagine, we're not an index of market pricing because of the significant improvement in the portfolio, along with the size and complexity of our placements. We continue to maintain very strong relationships with our reinsurance partners. And the support we receive in the marketplace is evident in the quality of the overall reinsurance program. We continue to make meaningful improvements to our core placements in every major treaty on January 1, and as a result, continue to reduce volatility in our portfolio.
While there's too much detail to cover on this call, I want to provide a few key highlights on our placements. For our Property CAT treaty, we improved the per occurrence structure and improved our aggregate structure for our Global Commercial businesses. For the North America per occurrence we lowered our attachment point to $250 million for all perils, which is a reduction from our core 2021 program that had staggered attachment points, depending on apparel, that range from $200 million to $500 million. And we maintained our per occurrence attachment points in International, which are $200 million for Japan and $100 million for the rest of the world.
For our Global shared limit aggregate cover, we were able to reduce our attachment point in every region across the world, most notably, $100 million reduction in the attachment point in North America. Our Global shared limit, each and every deductible remain the same or reduced in every Global region, most notably $25 million reduction in North America-named storms. Our attachment point return periods are the same or lower in every region across the world when compared to our 2021 core reinsurance program, and our exhaustion period returns are higher in every instance across the world on an OEP and AEP basis. And we achieved these significant improvements while modestly reducing the total aggregate reinsurance CAT spend.
On our core Casualty treaty, we reduced our net limits on our excess of loss treaty in both North America and International. On our proportional core North America placement, we maintained the same session amount while improving our ceding commission by 400 basis points, which represents an 800 basis point improvement over the last 24 months, reflecting our significantly improved underwriting and recognition from the reinsurance market.
Lastly, we renewed our cyber-structure at 1/1, with additional quota share cede increasing from 60% to 70% and the aggregate placement attaching at 85% versus a 90% loss ratio. Given the tight terms and conditions and discipline in our portfolio, along with significant rate increase we achieved during the year, we were able to secure more quota share authorization, which is a great example of the reinsurance market's flight to quality.
As we discussed on last earnings call, we've spent considerable time through AIG research and our Chief Underwriting Officer analyzing the impact of climate change and the increased frequency and severity of natural catastrophes. A few observations about 2021. It was the sixth warmest year on record since NOAA began tracking global temperatures in 1880. Hurricane Ida estimated at $36 billion of insured loss was the third largest hurricane on record. In North America, $17 billion of winter weather losses was the largest on record for this peril. And $13 billion of insured loss for European flooding was the costliest disaster on record for the continent.
While we've been working over the past few years to reposition our portfolio to limit exposure and dampen volatility, changing weather patterns and increased density of risk in peak zones have caused stress on aggregation and have hampered the ability of property underwriters to make appropriate risk-adjusted returns on capital deployed. These changes have caused us to look deeper into the exposures we are underwriting in several lines of business. An example of a business that needs further attention and strategic repositioning is our high net worth Property portfolio within our Personal Insurance segment. By the nature of the business, it's exposed to peak zones and is susceptible to increased frequency and severity. This reality, together with secondary perils that have become primary perils in the underwriting and modeling process, as well as secondary perils in modeling, have all driven up loss costs, creating a significant issue that needs to be addressed.
When analyzing the portfolio over the last 5 years, we've seen catastrophe levels that are 10x the level the portfolio dealt with in the prior 10 years for losses in excess of $50 million. The inability to reflect emerging risk factors, the effects of changes to modeling, increased loss costs from cats has put the profitability of the business under pressure. In addition, when you consider the increased exposure in most peak zones in the United States over the last few years, with significantly increased total insured values, in some cases, greater than 100%, more density, supply chain issues, reinsurance availability and increased reinsurance costs, and all this with heightened complexity the pandemic has caused, along with the impact of demand surge post-CATs, not being tested, the business model simply needs to change.
Recognizing these realities, after careful review, we decided to take meaningful steps to address this risk issue in our high net worth business, which will allow us to continue to offer comprehensive solutions to our clients that are more consistent and sustainable. Aggregation and profitability challenges led us to the conclusion that we have to offer the property homeowners product as an example, through excess and surplus lines on a non-admitted basis in multiple states. For example, in December, we announced that we would no longer be offering admitted personal property homeowners policies in the state of California. We cannot maintain our current level of aggregation in the state nor have we been able to achieve any profitability from this line of business. Being a prudent steward of capital, these actions will enable us to segment the portfolio, achieve an acceptable return, reduce volatility and offer clients more comprehensive policy wordings and service.
Now, turning to Life and Retirement. Full year results were driven by improved equity markets, strong alternative investment income, higher interest rates, higher call and tender income and higher fee income, partially offset by elevated mortality and base spread compression across products. Adjusted pretax income in the fourth quarter and full year was $969 million and $3.9 billion, respectively. The full year growth of 11% was driven by strong alternative investment and fee income. Full year sales were strong with premiums and deposits increasing 15% year-over-year to $31.3 billion. Sales within our Individual Retirement segment grew 34% across our 3 product lines for the year. Assets under management were $323 billion, and assets under administration increased to $86 billion, benefiting both from strong sales activities and favorable economic conditions.
We also made excellent progress with Blackstone in the fourth quarter, completing the initial $50 billion asset transfer, incorporating them into our asset liability management process, finalizing the investment guidelines and developing initial product offerings based on Blackstone's origination platform. Lastly, having analyzed our exposure to long duration target improvements, or LDTI accounting, based on the current interest rate and macro environment, we expect the transition impact of LDTI is well within Life Retirement's current balance of AOCI. Mark will provide more detail on this topic in his remarks.
Turning to the separation and IPO of Life Retirement. In addition to closing Blackstone transactions, we also continue to make significant progress on operationally separating Life Retirement from AIG, both with respect to what can be done by the IPO and longer term through transition service agreements. We are applying the same rigor and discipline to our separation work streams as we have with our AIG 200 transformation program, but with a clear focus on speed to execution. We continue to work towards an IPO in the second quarter of this year, subject to regulatory approvals and market conditions.
As I mentioned on our last call, due to the sale of our affordable housing portfolio in the fourth quarter, and the execution of certain tax strategies, we are not constrained in terms of how much of Life Retirement we can sell in an IPO. Having said that, the size of the IPO will be dependent on market conditions. We continue to expect to retain a greater-than-50% interest immediately following the IPO and to continue to consolidate Life Retirement's financial statements at least until such time as we fall below the 50% ownership threshold.
Finally, turning to capital management. We've been giving significant thought to both Life Retirement as a stand-alone business and AIG as we continue the path to separation.
With respect to Life and Retirement, our goal remains to achieve a successful IPO of a business with a capital structure that is consistent with its industry peers. Life and Retirement has a strong balance sheet and limited exposure to legacy liabilities, and its insurance operations have a history of strong cash flow generation. We expect that over time, this business will sustain a payout ratio to shareholders of 60% to 65% between dividends and share repurchases on a full calendar year basis. We also expect that post IPO, Life and Retirement will pay an annual dividend in the range of $400 million to $600 million, which equates to roughly a 2% to 3% yield on book value.
Additionally, as part of the separation process, in the fourth quarter of 2021, Life and Retirement declared a dividend payable to AIG in the amount of $8.3 billion, which will be funded by Life and Retirement debt issuances and paid prior to the IPO. Our expectation is that a vast majority of this dividend payment will be used to reduce debt at AIG and therefore, the overall amount of debt across our consolidated company will remain relatively constant at the time of the Life Retirement IPO. Post deconsolidation, we expect Life Retirement to maintain a leverage ratio in the high 20s, with AIG maintaining a leverage ratio in the low 20s.
Regarding our current capital management plan for AIG, ending 2021 with $10.7 billion in parent liquidity provides us with a significant amount of flexibility. Our capital management philosophy will continue to be balanced to maintain appropriate levels of debt and to return capital to shareholders through share buybacks and dividends, while also allowing for investment in growth opportunities across our Global portfolio. This will also be true post-IPO and over time as we continue to sell down our stake in Life Retirement.
With respect to share buybacks, we have $3.9 billion remaining under our current authorization and expect to complete this amount in 2022, weighted more towards the first half of this year. We do not expect the Life Retirement IPO to impact AIG's dividend and expect to maintain our current annual dividend level at $1.28 per share.
With respect to growth opportunities, our priorities will be to allocate capital in General Insurance, where we see opportunities to grow and further improve our risk-adjusted returns. We believe there are excellent opportunities for continued growth in Global Commercial Lines, which Mark will cover in more detail in his remarks.
As we move through 2022 and are further along with the IPO and separation of Life Retirement, we will continue to provide updates regarding capital management. As you can see, we made significant progress in 2021 and had a terrific year. 2022 will be another busy and transformational year for AIG. We started 2022 with a significant amount of momentum, and our colleagues continue to demonstrate an ability to execute on multiple fronts as we continue our journey to be a top-performing company.
With that, I'll turn the call over to Mark.
