American International Group Q4 2022 Earnings Call Transcript


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Participants

Corporate Executives

  • Quentin McMillan
    IR
  • Peter Zaffino
    Chairman, CEO
  • Sabra Purtill
    Executive Vice President, Interim Chief Financial Officer
  • David McElroy
    EVP and Chief Executive Officer

Presentation

Operator

Good day, and welcome to AIG's Fourth Quarter 2022 Financial Results Conference Call. This conference is being recorded.

Now at this time, I would like to turn the conference over to Quentin McMillan. Please go ahead.

Quentin McMillan
IR at American International Group

Thanks very much, and good morning. Today's remarks may include forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based on management's current expectations. AIG's filings with the SEC including our Annual Report on Form 10-K and our quarterly reports on Form 10-Q provide details on important factors that could cause actual results or events to differ materially. Except as required by the applicable securities laws, AIG is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change.

Additionally, today's remarks may 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 www.aig.com.

Finally, today's remarks will discuss the results of AIG's life and retirement segment and other operations on the same basis as prior quarters, which is how we expect to continue to report until the deconsolidation of corporate financial incorporated. AIGs segments and U.S. GAAP financial results as well as AIGs key financial metrics with respect there to differ from those reported by Corebridge Financial.

Corebridge Financial will host its own earnings call tomorrow on Friday, February 17th, and will provide additional details on its results. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino.

Peter Zaffino
Chairman, CEO at American International Group

Good morning and thank you for joining us to review our Fourth-quarter and full-year 2022 results. Following my remarks, Sabra will provide more detail on certain topics including life retirement results and our path to a 10% or greater ROCE and then we will take questions. Kevin Hogan and David McElroy will join us for the Q&A portion of the call.

Today. I will cover four topics. First, I will provide an overview of our fourth-quarter financial results. Second, I will review highlights from the full year including some of our major accomplishments which were remarkable given the very challenging conditions we faced throughout 2022 in the equity markets and the insurance industry. Third, I will unpack in some detail, market conditions leading up to January 1 reinsurance renewals where we saw significant shifts that we believe will impact the industry throughout 2023 and perhaps longer. Suffice it to say this one-one renewal season was the most challenge than many including myself have seen in our careers. And fourth, I will outline our 2023 priorities and outlook regarding capital management.

Before turning to our results, I'd like to welcome Sabra to the call. We are fortunate to have her in the interim CFO role while Shane is on a medical leave. Regarding Shane. I am personally deeply appreciative of the tremendous outreach from many of you, the number of people has saying good wishes for a speedy recovery, it's incredibly meaningful to me and our management team and particularly to Shane and his family. We look-forward to welcoming him back at AIG.

Now, let me begin with a brief overview of AIG's Fourth-Quarter Results. Adjusted after tax income in the Fourth quarter was a $1 billion and $1.36 per diluted common share. We repurchased approximately $780 million of AIG common stock and redeemed $1.8 billion of debt. AIG paid $243 million in dividends in the Fourth quarter and Corebridge paid two dividends totaling approximately $300 million following its IPO in September of 2022. Turning to General Insurance, in the Fourth quarter, the accident year combined ratio ex-CATs improved to 140 basis-points year-over-year to 88.4% representing the 18th consecutive quarter of margin improvement. Notably, underwriting income in the fourth quarter increased 27% year-over-year to $635 million.

Global commercial drove the year-over-year increase achieving an accident year combined ratio ex-CAT of 84.1% at 380 basis-point improvement and a 69% increase in underwriting income. Global personal report an accident year combined ratio ex-CATs of 100.4% at 610 basis-point increase from the prior year quarter as we continued to reposition this portfolio. Moving to Global Commercial on an FX adjusted basis, North America commercial net premiums written increased 3% and international increased 2%. Global Commercial had strong renewal retention in its in-force portfolio and new business continued to be strong. Turning to rate momentum continued in North America commercial with overall rate increases in the quarter of 3%, 7% if you exclude financial lines and 9% if you also exclude workers' compensation. These rate increases were driven by retail property at 15%, Lexington at 12% and excess casualty at 9% and the exposure increase in the North America portfolio was 3%.

International commercial rate increases were 4% driven by Asia Pacific at 9% and EMEA at 7% and the exposure increase in the international portfolio was around 2%. Pricing, which includes the rate plus exposure, was up 6% in both North America and International. While we experienced downward pressure on rates in certain lines early in the fourth quarter, we saw a re-acceleration of price increases towards the end-of-the quarter. For example, retail property was up 15% in the fourth quarter with rate improvement of 24% in December when market impacts from increased catastrophes started to be felt. We saw similar upward movement at Lexington and particularly within the property portfolio with December seeing the strongest rate increases in the fourth quarter. Overall, we continue to earn rate above loss cost trends, which contributed to positive margin expansion. And Global personal starting with North America net premiums written declined 7%, reflecting our ongoing reshaping of this portfolio, particularly in the high and ultra-high net-worth businesses that are part of PCG.

Later in my remarks, I will discuss our announcement on Monday relating to PCG and our partnership with Stone Point Capital to create a new Managing General Agency or MGA. In international personal net premiums written slightly increased by 1% on an FX adjusted basis due to a rebound in travel and growth in A&H. Now turning to the full year, we made tremendous progress throughout 2022 on a number of key priorities. I could not be more pleased with our team's ability to actually could on multiple complex strategic objectives across AIG that wants. Our most significant and impactful accomplishment was completing the IPO of Corebridge in September of 2022. Despite the very challenging equity market conditions, we had to navigate. Notably, Corebridge was last year's largest IPO in the US and the largest financial services IPO since 2020. We also continue to grow underwriting income in general insurance, which increased approximately $1 billion year-over-year. The second year in a row with over $1 billion of growth in underwriting income. As I noted on last quarter's call, we also reached significant milestones on AIG 200 that have modernize our technology infrastructure and operational capabilities while executing on an exit run-rate savings of $1 billion six months ahead of schedule.

We also changed AIG's investment management strategy and structure through successful partnerships with Blackstone and BlackRock and we are seeing the benefits of these partnerships across AIG and Corebridge. Turning to full year consolidated financial results for AIG adjusted after tax income in 2022 reached $3.6 billion and was $4.55 per diluted common share. We returned $6.1 billion to shareholders through $5.1 billion of AIG common stock repurchases and $1 billion of dividends. We finished 2022 with 734 million shares outstanding, a 10% decrease since the end of 2021. And we executed on a number of capital management actions to establish the standalone corporate capital structure, while reducing AIG debt by roughly $10 billion. Consolidated financial debt outstanding was approximately $21 billion at year end, with $11.8 billion at AIG and $9.4 billion at Corebridge.

Now let me cover full year 2022 results for general insurance. As you know, an important aspect of our turnaround over the last few years has been instituting a culture of underwriting excellence and our rigor in this area is now clearly benefiting our financial results. General Insurance achieved underwriting income of $2 billion in 2022 despite the industry again experiencing over $100 billions of insured natural catastrophe losses and we exceeded our combined ratio commitment by achieving a sub 90 accident year combined ratio ex-CATs in all four quarters. As I've noted on prior calls and it's worth repeating since 2018, we completely overhauled our underwriting standards and overlay these standards with a comprehensive reinsurance program that can adapt to market conditions and to our portfolio as it continues to change and improve. Overall gross limits deployed were reduced by over $1.2 trillion during this period.

We also meaningfully and deliberately shifted our global portfolio mix in order to reposition AIG for the future. For example, global commercial now represents 74% of our net premiums written up from 57% in 2018 and Lexington is now 17% of our North America commercial business up from 25% in 2018. If you exclude about 3, Lexington is now 23% of North America commercial. As a result of this work our current portfolio is very well-positioned for 2023. I will discuss in more detail later when I review January one reinsurance renewals, how market dynamics have shifted and how AIG should benefit as we look to capitalize on attractive opportunities for better risk-adjusted returns.

Now let me highlight a few of the key businesses in general insurance that contributed to our performance in 2022. Lexington, our market-leading excess and surplus lines business had 18% net premiums written growth in 2022, up over 50% since we transitioned this business to focus on the wholesale market. This business also increased underwriting profitability excluding CATs by 60% and it achieved a sub 80% accident year combined ratio ex-CATs for 2022. Gladfelter continued its terrific performance growing net premiums written by 14% increasing underwriting income and achieving an 85% accident year combined ratio ex-CATs. The acquisition of Gladfelter allowed us to significantly elevate the quality of our programs business. Global Specialty, which includes our global marine, energy and aviation businesses grew net premiums written by over 15% on an FX adjusted basis. This was driven by strong client retention of 88%, new business growth and rate increases across the portfolio.

Global Specialty generated strong earnings in 2022 with an impressive accident year combined ratio excluding CATs of 80%. These are just some examples of businesses that we prioritize last year based on their market position, our differentiated value proposition to clients and our ability to generate strong underwriting results. We see great opportunities for these businesses going-forward and they are strong anchors for AIG that we expect will contribute to profitable growth in 2023. Our global personal business performed well considering some of the post pandemic headwinds we saw in the first half of 2022 in our strategic repositioning of the business.

Also, as I mentioned on our last call, the impact from deemed hospitalizations in Japan and to a lesser extent Taiwan contributed over $160 million of losses in 2022, having a 290 basis-point impact on the international personal accident year combined ratio. This accident and health product was discontinued in 2022. Turning to full year net premiums written, general Insurance grew 4% on an FX adjusted basis, driven by 6% growth in global commercial, North America grew 7% and international commercial grew 6%. We had strong renewal retention in our in-force portfolio with North America improving by 300 basis-points to 86% and international achieving 86% for the full year. And as a reminder, we calculate renewal retention part of the impact of rate and exposure changes.

Turning to underwriting profitability for the full year 2022 was another year with strong progress. The general insurance accident year combined ratio ex-CATs were 88.7% an improvement of 230 basis points year-over-year. The full year saw 180 basis point improvement in the accident year loss ratio ex-CAT and a 50 basis point improvement in the expense ratio. Global commercial achieved an impressive accident year combined ratio ex-CATs of 84.5% an improvement of 460 basis points year-over-year. The loss ratio was the biggest contributor with a 330 basis-point improvement and the combined ratio including cats in PYD of 89.6% represented a 920 basis-point improvement year-over-year. The accident year combined ratio ex-CATs and global personnel deteriorated 430 basis points at 99.2% for the reasons I've outlined before.

Now let me turn to reinsurance renewals at January 1 of this year. As I stated on our last earnings call, we knew this renewal season will be very challenging and lead to fundamental changes in the market that would impact one-one renewals. The market was faced with a combination of factors, the added further pressure to dynamics that were already creating considerable stress. We had top global macroeconomic trends. We had geopolitical uncertainty. We had short-term pressure on the asset side of the balance sheet as a consequence of rising interest rates, inflation and currency fluctuation. We had additional natural catastrophe losses late in the fourth quarter, an increasing frequency and severity of secondary perils continued. And 2022 ended with over $130 billions of insured natural catastrophe losses, making 2022 the fifth costliest year on record for insurers with five out-of-the last six years having exceeded $100 billion.

Hurricane Ian in particular proved to be a catalyst that changed market dynamics even more significantly than expected and ultimately led to shifts in the market that required the industry to rethink reinsurance placements and the commensurate changes that needed to take place in the primary market. The unprecedented levels of natural catastrophes on a global scale massively impacted the reinsurance market in a couple of ways. Increased natural cat activity has resulted in elevated property cat ceded loss ratios, with average incurred loss ratios from 2017 through 2022 exceeding 85% compared to 2012 through 2016 when average incurred loss ratio kind of below 30%, a dramatic deterioration. And over the last five years secondary perils contributed more than 50% ultimate loss when compared to primary perils. These market dynamics also impacted the supply of reinsurance and retrocessional capacity and the cost-of-capital increase for the industry, which impacted almost all lines of business and territories regardless of loss experienced. On top of all of this very little new capital entered the market. Available capital is estimated to have decreased approximately 20% year-over-year.

Now let me outline what happened in the property cat and retro markets in particular due to the high-level of cat losses in 2022, which were further exacerbated by events in the fourth quarter. 50% of global property cat limits which we estimate to be $425 billion renewal January 1. Approximately 70% of global retro limits estimated at 60 billion incepted January 1. Reinsurers heavily relying on peak peril retro protection face greater pressure as a result, whereas larger more diversified reinsurers were better able to manage retro capacity constraints. As a result, a majority of programs placed on January 1 insurance companies forced increased retentions. Despite these market challenges, AIG navigated this complex and intense renewal season extremely well. We knew we were in a strong position heading into January 1 given the repositioning and improved quality of our global portfolio coupled with our considerable efforts to reduce our gross portfolio peak exposures. As we expected, this allowed us to capitalize on many attractive opportunities and this proved to be a competitive advantage as we had an exceptionally successful renewal season.

It's also worth noting that AIG's reinsurance purchasing is by design more heavily weighted to January 1 than the wider market. The benefits of this are twofold, concentrating the bulk of our purchasing at January 1 allows AIG to maximize the outcome across all of our reinsurance placements and we have clear line-of-sight on our reinsurance costs for the full year, which is particularly valuable in a market, which we believe will continue to be incredibly challenging. Some of the highlights of our January placements include the following, with respect to property catastrophe placements we obtained more limit than we purchased in 2022 and we believe we have the lowest attachment points on a return period measurement for North America windstorm and earthquake amongst our peer group and our modeled exhaust limits are at higher-return periods compared to last year for each of our placements. These placements should further reduce volatility, which is something we remain very focused on, and they provide us with significant balance sheet protection in the event one or a series of significant catastrophe events occurred.

Specifically, we separately made appropriate changes to our North America property cat treaties to reflect our improving portfolio with retention of our commercial cat portfolio attaching a $500 million in Lexington in our programs business having an attachment point of $300 million. The property cat aggregate cover that we placed as for retentions before attaching and for North America, Japan and rest-of-world, it now could attach in the second event which is an improvement from 2022. Our property cat per current structures largely stay the same for international and we believe they are market-leading with Japan's retention staying flat at $200 million and the rest-of-world attaching at $125 million. Many factors improved our overall property cat reinsurance program with highlights being we were able to obtain approximately 6 billion of limit, including increasing our per occurrence excess-of-loss placements. We maintain low attaching on a model basis. We receive support for a $500 million aggregate placements. And our overall spend for AIG increased less than 10% on an absolute and risk-adjusted basis versus 2022.

With respect to PCG, we accelerated portfolio remediation, which is driving further gross exposure reductions in key cat-exposed states where loss costs, inflation and necessary modeling changes have not kept pace. This allowed us to reduce the total limit purchase for the PCG specific cat program, which partially offset increased pricing pressure due to Hurricane Ian. Overall casualty renewals both excess-of-loss in our quota-share placements renewed close to expiring terms on a risk-adjusted basis with no impact on ceding commissions. Our reinsurance partners maintain their support for AIG with consistent capacity deployment and reinsurance terms in clear recognition of the quality of our portfolio. The outcomes we achieved at January 1 also reflect the value of investments we have made in our reinsurance strategy and coupled with our relationships incredibility with reinsurance partners are a testament of the confidence the reinsurance marketplace has in AIG and its management team.

We appreciate the ongoing support we have received from our reinsurance partners. As we look ahead to 2023, the world faces many uncertainties and in uncertain times our role as a market-leading global insurance company is even more important. With the momentum we have built and the strength of our portfolio, AIG is now extremely well-positioned to strategically grow and lead the market by providing thoughtful expert advice on risk solutions for our clients, distribution partners and other stakeholders. Like 2022, we have set-out ambitious strategic in operational priorities for 2023. We will continue to improve and invest in lines of business in general insurance where we see significant growth potential notably Lexington and Global Specialty. I highlight Lexington because it is presented and will continue to present tremendous growth and profitability opportunities for us. And early indications are that the rate momentum we saw in this business at the end of 2022 and into early 2023 will continue. We expect meaningful growth in Lexington this year led by property. We're over the last few years we have prudently tightened limits, improved terms and conditions and increased profitability while driving topline growth.

We also plan to increase investment in our assumed reinsurance business in 2023 particularly through Validus Re. As we have discussed on prior calls over the past few years, we've been highly focused on driving value through a disciplined approach involving strong risk assessments, some portfolio construction, a steadfast commitment to underwriting excellence and prudent capital management. Over this period of time the de-risking within Validus Re was particularly acute in the global property cat market where year-over-year we reduced participations across the portfolio while concurrently purchasing sound retrocessional protections to prudently manage the portfolio and reduce volatility, all-in line with our cycle management strategy. As a result, we're in a strong position to capitalize on attractive opportunities at January 1. The property market in particular repositioned and became very compelling in terms of risk-adjusted rates along with enhanced structures as well as beneficial terms and conditions.

Rate changes within property cat range between 30% and 100% in the U.S. as well as in peak zones outside the U.S. Risk-adjusted rate increases were approximately 50% in the U.S. property and 35% in international property and similarly average margin improvement was approximately 50% year-over-year across the entire portfolio. Property cat ROEs for both the U.S. and International business increased by greater than 100% year-over-year. Additionally, we obtain improved terms and conditions including favorable movement and attachment points and all property lines. For casualty lines quota shares remain sound with ceding commission is moving favorably for reinsurers by one to two points along with terms and conditions remaining in-line or improved. The result of these actions included net premiums written at January 1 increased over $500 million or 50% year-over-year. This increase was driven roughly 30% from U.S. property, 15% from international property, 45% from casualty placements and the remaining 10% was from specialty including marine and energy. The majority of new property limit was deployed to existing clients with a significant level of private terms being achieved on our US property writings. Looking ahead, we will continue our measured approach for other renewals. For example, if meaningful market changes continue, we will carefully consider our positions at the April 1st Japan renewals and we will continue to be very cautious with capital deployed at June 1 in Florida.

Turning to Private Client Group or PCG, this business remains a strategic priority for us in 2023. As you know, over the last few years, we have undertaken a significant re-underwriting efforts in this portfolio reduced aggregate exposure, transition certain states to the non-admitted market and developed strong partnerships with Lloyd's and reinsurers to reduce volatility. On Monday, we announced our intention to launch in partnership with Stone Point Capital, a newly formed MGA that will underwrite on behalf of AIG and eventually other capital providers in the high and ultra-high net-worth markets. AIG will transfer PCG solutions to the MGA which will offer a single and then broker and client portal, a comprehensive set of product offerings, a simplified data warehouse and the underwriting capabilities of AIG. The MGA will be rebranded as private clients select or PCS and will be led by Kathleen Zortman and our current team at PCG. We see this new structure as a logical next step-in the evolution of PCG and believe it will create significant value for clients, brokers, and other stakeholders.

Additionally, expense discipline will continue to be a priority for AIG. In addition to savings from AIG 200 that we expect to earn in during 2023, we plan to move $300 million of expenses currently sitting in AIG corporate GOE to Corebridge upon deconsolidation. Separately, we will continue to align our target operating model and further reduce absolute expenses across AIG parent and general insurance to reflect the fact that AIG is becoming one company. This year we will also remain focused on completing the operational separation of Corebridge from AIG and we are working towards a secondary offering of Corebridge common stock by the end of the first quarter subject to-market conditions and regulatory approvals. Our current expectation is that the majority of net proceeds of the secondary offering will be used for AIG common stock repurchases. And as I've stated on our last call, we are revisiting AIG's dividend, which has not changed in many years. We expect to say more about this on our first-quarter call-in May.

With respect to capital management priorities in 2022, we did a significant amount of work to materially improve the capital structures of both AIG and Corebridge. With the reduction in AIG debt, we achieved our post deconsolidation leverage will be in-line with best-in class peers and with respect to share buybacks we have $3.8 billion remaining on our existing share repurchase authorization. Our balanced capital management philosophy will continue to allow for investment in growth opportunities while returning appropriate levels of capital to shareholders through share buybacks and dividends. We also remain open to compelling inorganic growth opportunities should they arise. Before turning the call over to Sabra, I would like to pause and say that 2022 was another incredibly important year for AIG, our colleagues did an exceptional job, particularly on the Corebridge IPO and the continued underwriting and operational improvements that are clearly showing through in our financial results. Our journey to be a top-performing company continues and I fully expect 2023 to be another year with significant momentum and progress across the organization.

With that, I'll turn the call over to Sabra.

Sabra Purtill
Executive Vice President, Interim Chief Financial Officer at American International Group

Thank you, Peter. Today I will review net investment income, additional color on our fourth quarter and full year 2022 results and capital management and also update you on the progress we are making on our path to a 10% plus adjusted return on common equity or ROCE. Turning to net investment income on an APTI basis, fourth quarter net investment income was $3.0 billion, down $331 million or 10% compared to 4Q 2021. Similar to trends throughout 2022, the decrease was due to lower alternative investment income principally on private-equity investments and lower bond call and tender premiums and mortgage prepayment fees. For the full year, net investment income on an APTI basis was $11.0 billion down $1.9 billion due to the same trends.

For the quarter and the full year, we achieved higher new money reinvestment rates and rate reset some floating-rate securities in 4Q 2002 net investment income on fixed maturities and mortgage and other loans rose $224 million sequentially with 29 basis-points of yield improvement, which was ahead of our 10 to 15 basis-point forecast. Since second quarter of 2002 when we began to bend the curve on investment yields, the increase has been 55 basis-points. In 4Q 2002 the average new money yield was just over 6% and about 173 basis-points above sales and maturities, new money rates were roughly 157 basis points higher in general insurance and 190 basis points higher in life and retirement.

In addition, during the fourth quarter we repositioned some of the general insurance portfolio to lock-in higher yields, while maintaining similar credit quality and duration. This resulted in a modest capital loss of $57 million, but we expect the portfolio to generate higher net investment income in 2023 as a result. Given current market levels, we expect additional yield uplift of 10 to 15 basis points on the consolidated portfolio in 1Q 2023. Before I head into results for the quarter, I want to note that in the fourth quarter, we eliminated the one month reporting lag in general Insurance International, which had a $100 million positive impact on our GAAP net income for the quarter. This change did not impact 4Q APTI which remain on the same reporting basis as the prior year. But in 2023, GI International results will be on a calendar quarter basis and one month difference than 2022, which will create some slight timing mismatch in quarterly net premiums written comparisons, but with minimal impact for the full year. Please see page 25 of the financial supplement for more details.

As Peter noted, AIG reported adjusted after tax income of $1.0 billion or $1.36 per diluted share. General Insurance delivered APTI of $1.2 billion compared to $1.5 billion in the prior year quarter due to lower investment income, partially offset by a $136 million increase in underwriting income. Prior year development was $151 million favorable in the fourth quarter up from $44 million of favorable development in 4Q 2021. Net favorable amortization for the ADC was $41 million, while North America favorable development was $148 million and International was $38 million adverse mostly driven by casualty. Fourth quarter other operations adjusted pretax loss of $451 million improved $197 million from last year, despite $23 million of additional expenses related to the Corebridge separation.

Annualized adjusted ROCE was 7.5% in 4Q 2002 down from 9.9% in 4Q 2001 principally due to lower alternative investment income. Turning to Life and Retirement strong sales momentum continued in the fourth quarter. Life and Retirement APTI was $781 million down from $969 million in 4Q 21 due to lower investment income and alternatives and other yield enhancements, partially offset by higher base investment income and more favorable mortality. Individual retirement sales were $3.8 billion, a 16% increase over the prior year quarter with fixed annuity sales up 78% and fixed index sales up 34%; new record sales for both products. Group retirement deposits grew 20%, driven by higher out of planned fixed annuity sales and large planned acquisitions.

The life Insurance business had solid sales with an improving mix of business in the U.S. and continued growth in the U.K. In institutional markets, premiums and deposits were $1.6 billion driven by $1.3 billion in pension risk transfer activity. New product margins in L&R were attractive and in excess of long-term targets, supported by higher new money yields including from Blackstone. After years of spread compression, L&R spreads are expected to improve in 2023. I wanted to make you aware of an update to our LDTI estimate. In the first quarter of 2023, we will adopt the change in accounting principle for LDTI. With the transition date of January 1, 2021. Our current estimate is that as of September 30, 2022, the adoption would increase shareholders' equity between $800 million and $1.3 billion and AIG's adjusted shareholders' equity would increase between $1.2 billion and $1.7 billion. This increase in the estimate has been predominantly driven by capital market movements during 2021 and 2022.

Turning to full year 2022, AIG reported adjusted after tax income of $3.6 billion or $4.55 per diluted share compared to $4.4 billion or $5.12 per diluted share in 2021. These results include much stronger underwriting profitability in GI, offset by lower alternative investment income as previously described. General Insurance APTI for the full year 2022 was $4.4 billion, up 2% from 2021 due to the $1 billion increase in underwriting profitability, offset by lower investment income. L&R APTI was $2.7 billion, down from $3.9 billion in 2021, principally because of lower investment income. Other operations adjusted pretax loss improved about $400 million in 2022 due to lower general operating expenses and higher income and short-term investments. Full year 2022 included additional expenses from the Corebridge separation of $51 million and in 2023 we expect an incremental cost of $75 to a $100 million in other operations GLE related to the separation.

Adjusted book-value per share was $73.87 at December 31, 2022, up 7% from year end 2021. Full year adjusted ROCE was 6.5%, down from 8.6% in 2021, primarily due to lower alternative investment income which was down $1.8 billion from 2021 or about 340 basis points of ROCE compared to 2021. At year end, our primary insurance subsidiaries remain above target ranges for statutory capital with GI's US pool estimated in the range of $45 to $4.95 and L&R estimated in the range of $410 to $420. In addition to the strong financial results, we also executed on multiple capital management priorities in 2022. As Peter described, we established a separate debt capitalization structure for Corebridge and subsequently reduce AIG holding company debt by $9.8 billion. This reduction in AIG debt will lower AIG holding company interest expense from about a $1 billion in 2021 to roughly $500 million in 2023, excluding interest expense on Corebridge issue debt.

In 2022, we also returned our $6.1 billion to shareholders, with a $1 billion of dividends and $5.1 billion of share repurchases, yielding a 10% reduction in shares outstanding. We ended the year with parent liquidity of $3.7 billion. Looking ahead, we remain highly committed and laser-focused on delivering a 10% plus ROCE after the deconsolidation of Corebridge. As Peter and Shane has shared previously, achieving this goal is based on sustained and improved underwriting profitability, executing a leaner operating model across AIG, separation and deconsolidation of Corebridge and continued balanced capital management including reducing AIG common shares to between 600 and 650 million shares through repurchases while targeting debt-to-total capital leverage at the lower end of the 20% to 25% range post deconsolidation.

Progress on each of these will increase ROCE along with additional tailwinds from higher reinvestment yields and alternative returns more consistent with long-term averages. As Peter mentioned, expense reduction remains an important goal. In the following years, we expect to achieve $300 million of additional savings from AIG 200 with the majority earning in through 2023. $300 million of AIG Corebridge general operating expense moving to Corebridge upon deconsolidation and additional savings as we transitioned to a leaner operating model. As a reminder, every $500 million of expense savings equates to one point of ROCE improvement. I will now turn the call-back over to Peter.

Peter Zaffino
Chairman, CEO at American International Group

Thank you. Michelle, we'll take our first question please.

Questions and Answers

Operator

Thank you. [Operators instructions]

Our first question comes from Elyse Greenspan with Wells Fargo. Please proceed with your question.

Elyse Greenspan
CFA, Managing Director at American International Group

Hi, thanks. Good morning. My first question is on the path to the double-digit ROE target, so the starting point is the 6.5% from 2022, but I know that, that it does include some contribution from L&R and will in the near-term. So can you help us with what the starting point would be, if you stripped out the earnings contribution in equity of Life and Retirement just trying to get a sense of the ROE of the ongoing business and how the walk and that's starting point changes in Q1, including the Life and Retirement business.

Peter Zaffino
Chairman, CEO at American International Group

Thanks Elyse. I would think in terms of how you should think about this for us to get to the 10% ROE, Sabra outline in detail is really, three major ways in which we'll get there. One is through the underwriting results. The other is expense savings. The other is sort of the capital rebalanced with share repurchases and other capital management. We should think about that as a three to 350 basis-point target in terms of us getting to the double-digit ROCE, of course, net investment income can benefit and that's more of a timing issue. We've never said even in the prior calls that contribution from increased NII will be the one that needs to contribute to get us the 10%, but I think -- I would think of it in that range for the different components.

Elyse Greenspan
CFA, Managing Director at American International Group

Okay and then my second question on, you guys have taken up your loss trend assumption to 6.5% last quarter. I'm assuming that didn't change but correct me if I'm wrong and Peter you spoke to pricing of 6%, which would put within pricing below loss trend, but you also did say right that rates got better as we ended the year in December. So would you expect, the 6% to go above loss trend in the first quarter.

Peter Zaffino
Chairman, CEO at American International Group

Yes, thank you. The first part at least we did not change our loss cost assumptions from what we had outlined in the third quarter, so 6.5% remains our view. When you look at the fourth quarter, like you said, overall, there was around 6%, but when you -- you have to take a couple of things into consideration. One is, fourth quarter is our seasonally sort of lowest size quarter but if you look at financial lines like financial lines is even drove the entire year first quarter through fourth, so had a little bit more of a contribution to the overall rate index in the fourth quarter. Our international was very well-balanced. We had strong rate in areas where we felt we needed it, which is like property, excess casualty. We're driving rate as we have been for the last several years in Lexington, the excess and surplus lines. And then I look at the full year in terms of North America, the excess casualty, retail, property, Lexington, all getting double-digit, rate increases and so like we have been very focused on the rate above loss cost to continue to develop margin.

I think that's been evidence through the culture that we've developed in terms of underwriting excellence. We are very focused on making sure that we continue that and its terms and conditions and adjustments to how we structure businesses going forward. December was much stronger than the first part of the quarter and as we looked at January, that momentum is continuing. Dave, maybe just spend a minute on what happened in financial lines and D&O specifically.

David McElroy
EVP and Chief Executive Officer at American International Group

Yeah, thank you Peter and thank you Elyse. Yes, to Peter's point, we have to be careful around generalizations because we are actually hitting rate over trend in most of our big businesses, the outliers financial lines and, and financial lines, you also have to unpack a little bit and understand that excess D&O and excess D&O in large public companies is probably driving some of the macro numbers, but it's not driving the behavior underneath. So in our financial lines business, we have professional liability, we have cyber, we have private company business, we have financial -- financial institutions and all those businesses are actually getting rate over trend. But sometimes when you aggregate up the excess public company business it suppresses it and in that case Elyse It's hard to rationalize, I'll be very frank, that's a place where if your primary, you're still getting rate, you're still getting flat, maybe down a little bit, but you have you have risk-adjusted rate that's helping. In the excess business, it's, it's been very competitive. It's a different sort of market and, and it's actually a market that I would say that cycle mentioned and companies that are like being thoughtful need to actually wrestle with whether that's a place they're going to trade, okay.

If the rates are going down, 20% to 30% is probably influencing some of the numbers that you look at on an aggregate basis, and inside that portfolio, decisions again have to be made as to, as to how you trade there, okay. In our case, it represents a small amount of the portfolio, but I'm congesting that that's actually where the commoditization of the business is going to, is going to cause a little bit of pain in the 2023-2024 year okay. But it's -- I do, Peter hates it, we, we look at rate over trend down and I'm kind of very granular basis and I think we're comfortable with what that means to our big businesses and even in financial lines what it means to our sub-products there and I think that's an important part of our story.

Peter Zaffino
Chairman, CEO at American International Group

Thanks, Dave. And don't forget the cumulative rate increases, we've achieved in D&O over the last three years have been north of 80%, so again it's a line as Dave says, we're laser-focused on, we're not going to chase the market down, but the cumulative rate increases, and margin developed hasn't been fully recognized and we're going to look to 2023 with a lot of discipline. Next question please.

Operator

Thank you. Our next question comes from Paul Newsome with Piper Sandler. Your line is open.

J Paul Newsome
Managing Director at American International Group

Good morning. There, there has been an enormous amount of conversation and you obviously did a lot, it's attitude about excess casualty or excess-of-loss reinsurance and but as a large account, commercial losses rise, I assume you're using a lot of facultative as well and I was curious if, if the comments you're making extend into not just sort of excess-of-loss, but also facultative and even quota-share as being as impacted as some of the other pieces of the business and how that would affect AIG.

Peter Zaffino
Chairman, CEO at American International Group

Thanks, Paul. We do purchase facultative in certain segments of our business, but we were really referencing the court treaties. When we look at risk appetite, when we, thinking through our ability to protect the balance sheet and where we want to structure treaties. We don't require facultative reinsurance for other segments in order to supplement the core structure, so when I was referencing in my prepared remarks, the treaty structures, we did an exceptional job, the team really focused on modeling changes. Inflationary changes. And where we thought capital was going to be less expensive versus more expensive. An example that would be taking big excess-of-loss cat across the world, it gets too expensive for allocation of capital and that is something we moved away from, as we build more vertical towers in North America and in International, then Japan specifically. So, I think the overall market has responded most to property, casualty has started to tighten up. I still think that there is ample capacity in, in quota shares that may be with some tighter terms and conditions and ceding commissions are by and large it was placeable. And yes, facultative, I think has become harder to place on property just based on the capital available, but for us we don't heavily rely on facultative to deliver results is really our core treating structures.

J Paul Newsome
Managing Director at American International Group

Understood. Can you also talk about the change in conditions in commercial lines, obviously AIG led the market in change in terms and conditions in commercial lines. It is the impact, pretty much fully there, now today at AIG and have you seen -- are you seeing any change in the market as well for terms and conditions gets, gets meaningful outside pricing change.

Peter Zaffino
Chairman, CEO at American International Group

I think we've done an exceptional job on the underwriting side with terms and conditions. I think the entire team has focused over the last several years as, not only, certainly pricing as an output, but how we structure our insurance deals, how we focus on client needs, but also how we customize terms and conditions to make sure that we have the appropriate policies and endorsements in the marketplace. I don't think it's over, it's something that's a nuance, but as we look to the property market in 2023, it's one of the areas where when you report out rate, you really have to understand the risk-adjusted implications of rate increases. For instance, in excess and surplus lines property, I expect to see higher deductibles, more wind deductibles, tighter terms and conditions, we've seen what used to be all risk which covered all perils now to named perils and so you can strip out a lot of coverage in terms of when you're placing it, whether you're trying to solve for wind, quaker flood, you don't provide all the perils and so if you said to me what's one of the big areas that you'll see an improvement in 2023, will be on the terms and conditions and how we price those, those perils and I think we will offer particularly in excess in surplus lines the appropriate coverage, but we will be restrictive on terms and conditions, if we don't feel we're getting paid for. So, I don't think it's over.

J Paul Newsome
Managing Director at American International Group

Thank you.

Peter Zaffino
Chairman, CEO at American International Group

Thanks, Paul. Next question.

Operator

Our next question comes from Erik Bass with Autonomous. Please proceed with your questions.

Erik Bass
Partner at American International Group

Hi, thank you. Just hoping you could help us think about the base NII trajectory for 2023, so we're seeing a nice step-up the past couple of quarters, and you gave some guidance for the first quarter, but how much is the increase is coming from resets on floating-rate assets and how much is the tailwind from higher reinvestment yields in the portfolio changes that you're making, that should continue to build throughout the year.

Peter Zaffino
Chairman, CEO at American International Group

Thanks, Eric. As you know, this has been an active strategy for us particularly over the back half of 2022. I think the team has done an exceptional job and Sabra maybe you could just provide a little bit of insight in terms of some of the NII and the reinvestment rates.

Sabra Purtill
Executive Vice President, Interim Chief Financial Officer at American International Group

Yes, happy to do that and I would just note we added a new footnote on page 47 of the financial supplement that gives you the walk of the yield on fixed maturity securities and loans. So, you can see the quarter-to-quarter improvement in the portfolio yield on that portfolio, which basically began to bend the curve in the second quarter for a step-up in yields. And we also there, gives you the impact of the other yield enhancements which year-over-year was about a $400 million headwind for AIG consolidated NII. But to go back to your question about the path forward and I'll put alternatives to the side, I mean, those are obviously volatile quarter-to-quarter, but like I said, that was 340 basis points of headwind year-over-year. 2021 was an exceptional year for alternative returns, whereas full year 2022 was about a 5.6% yield, so more in-line with our average assumption.

But to go back, in the quarter, as I said, new portfolio yield or the new money rates were just above 6% and about 173 basis points over the assets going forward. And if you look at in the quarter, fourth quarter 2022 grew about 160 million just due to the rate resets and about 14 basis points from the pickup in yield on the portfolio. Now in 2023, the impact is going to really depend on the path and timing of market rates, Fed rate hikes, changes in credit spreads as well as the movement in the yield curve. As you know the GI has got a shorter duration than L&R and right now, we've got an inverted curve, so depending on where you're investing and you're going to have different impacts on your yield. So, what I would just kind of point you to is for the full year our projecting about $8 billion of reinvestment on the GI portfolio, $20 billion in Corebridge and for the first quarter we're projecting about 10 to 15 basis points of yield uplift just based on where we are for rate. And since the market is expecting additional rate increases, I would, from the Fed I would expect to see more pickup from the floating rate note resets during the course of the year and then like I said really what we pick up in the second or third quarters is going to be a function of how the shape of the yield curve changes.

But the point I would just make in total is that we are definitely having a tailwind from higher rates and higher spreads in the market, in addition, during the last several months because of the, the basically the changes in the spreads and where some of the opportunities where we're able to move up in quality on the bond portfolio investments while still getting a pickup in the yield because in the market environment. So, at this point in time I think it's premature to give any sort of actual projection on a dollar basis, but from a yield pickup trend we're very confident that we'll continue to see that during 2023.

Peter Zaffino
Chairman, CEO at American International Group

Thanks Sabra

Sabra Purtill
Executive Vice President, Interim Chief Financial Officer at American International Group

Thanks.

Erik Bass
Partner at American International Group

Thank you. That's helpful and then secondly just was hoping you could help us think about the trajectory for the other operations, Bob spoke before and after the Corebridge separation. So, it sounds like GLE there should go up in 2023 because of some in the Corebridge expenses, maybe that's offset a little bit by interest savings, but then you'll get a big step-down when you deconsolidate Corebridge in the 300 billion comes out of it, is that the right way to think about it.

Peter Zaffino
Chairman, CEO at American International Group

Yes, Eric, it is. We and other operations think about it in a couple of components. I think you've outlined most of them, is that upon deconsolidation, we would have 300 million or there thereabouts go with Corebridge. I mean, there could be some stair-step up. I mean it's hard in 2023 to look at each quarter because we're building Corebridge as, as we've talked about before, as a standalone public company. So those amounts will be on each quarter depending on the progress that we're making. So, I would think about the 300, I think we'll have savings in other operations throughout the year, separate from that in $100 to $200 million range. And then as we get to the future target operating model, we've given guidance in the past that we anticipate that we'll get around 500 million, not addable. That will not all come out of other operations, come out-of-the combination of what is general insurance in the parent company today but that will take deconsolidation and will take us to get to the target operating model, but I think in the short-run, you should think about Corebridge as $300 million and that between $100 and $200 million of other reductions in other ops is, is how we would think about it in 2023.

Erik Bass
Partner at American International Group

Thank you.

Peter Zaffino
Chairman, CEO at American International Group

Thanks. Next question.

Operator

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

Alex Scott
Analyst at The Goldman Sachs Group

Hi, good morning. First one I had is just on net premium written growth in general insurance. I mean, we saw it slow in 2022, particularly towards the back end of the year and it sounds pretty interesting some of the opportunities you have both in Validus Re and Lexington, but I just wanted to get sort of higher level perspective from you on what the strategy has been to sort of slow some of that premium growth in the back half of this year and how you see that potentially inflecting as we go into 2023.

Peter Zaffino
Chairman, CEO at American International Group

Thank you for the question. You have to really look at the full- ear, I believe, in terms of showing the progress of what we've done as a company. First and foremost, again I'll mention it again, which is a culture of underwriting excellence. When we look at commercial with the 340 basis-point improvement in in the fourth quarter in terms of its action year combined ratio ex-CAT, 440 for the year, I mean, that's substantial progress. I mean we made enormous improvements in profitability and so we've shaped the portfolio the way we like it. We're again, the fourth quarter, not all roads lead to financial lines but again it was just a disproportionate amount of premium relative to the overall size fourth quarter small, we saw a real good growth in the businesses that we want to grow in which is in the excess surplus lines, global specialties, but as we've been talking about I hope it's evidence through what we did at one-one, which is why we wanted to put it in the prepared remarks, which is, I kept talking about taking aggregate down where we didn't think we were getting the appropriate risk-adjusted returns. But when we thought we felt that the risk-adjusted returns were there like in the reinsurance business, we expanded significantly and expect to see that through 2023, can't really predict the market, but I don't believe this is all play through.

We had a very complicated 1/1, but you have Japan coming up in the hardest part in terms of the reinsurance market and thus then the primary market on peak selling is going to be Florida at 6/1 and so we think there's great opportunities in excess and surplus lines continue to grow, again Global Specialties retail property across the world. We'll watch International, but I don't believe that the treaty increased pricing that happened which was substantial at 1/1, will play its way through the international business until 2024 because a lot of the deals, 60% of it comes up at 1/1 was priced off of prior year treaties. And so I think this has momentum, we are incredibly well positioned, we have no aggregate restrictions and where we see risk-adjusted returns that are attractive, which we already have. We're going to deploy capital. That was the whole idea of putting more capital in subsidiaries and then it goes to other lines of business. I mean you cross-sell, what we do in casualty, how we play in these different markets, we have such tremendous following as lead experts in underwriting that we believe across the world our platform will be very helpful to our clients and we expect to find really strong areas for growth.

Alex Scott
Analyst at The Goldman Sachs Group

That's really helpful. Second one I had is more specifically on casualty and excess casualty pricing. Yeah, we've heard some peers kind of talk about pricing and express needs for it to reaccelerate, and I think some investors seem to be getting a little more cautious about the potential for continued deceleration there, I felt like your prepared remarks are a little more optimistic. I'd just be interested in your perspective on the portfolio at AIG, what you're seeing in the market and where you expect things to go there.

Peter Zaffino
Chairman, CEO at American International Group

We watch it carefully, I mean excess casualty, we're still getting very strong rate we have for the last couple of years. And that didn't stop in the fourth quarter. My prepared remarks, we're really just focused on. I don't think the market that we entered in the fourth quarter is the market that we're in. There's been a lot of changes over the last 60 days and like every other line of business may need to stand on its own, may needs to develop margin, we want to be conservative in our position and making certain that the underwriting terms and conditions are appropriate, but we're watching it carefully. I haven't seen a substantial downturn in terms of pricing, it's been right in, sort of same range for, as I said, the last six quarters and it's something that we're going to watch very carefully in 2023.

Alex Scott
Analyst at The Goldman Sachs Group

Okay.

Peter Zaffino
Chairman, CEO at American International Group

Okay we greatly appreciate the engagement and all the questions and appreciate the interest and so. I just wish everybody a great day and thank you for being here.

Operator

[Operator Closing Remarks]

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