American International Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

Key Takeaways

  • Adjusted after-tax income of $1.2 billion, or $1.61 per share, rose 92% year-over-year on strong underwriting results and higher investment income.
  • General Insurance net premiums written grew 9% to $6.5 billion, with underwriting income of $611 million and an adjusted accident-year combined ratio ex-cat of 86.3%, a 210 bp improvement.
  • Life & Retirement pretax income climbed 24% to $971 million, led by a 4% growth in premiums and deposits and over $2 billion in fixed index annuity sales for the third consecutive quarter.
  • AIG closed the sale of Validus Re for $3.3 billion and continues to divest non-core assets—including Corbridge Financial stakes—to streamline the portfolio.
  • Capital management remained a focus, with over $1 billion returned to shareholders in Q3 and an additional $3.7 billion expected in Q4, support­ing accelerated share repurchases and a target of 10%+ ROCE post-Corbridge deconsolidation.
AI Generated. May Contain Errors.
Earnings Conference Call
American International Group Q3 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good day,

Speaker 1

and welcome to the AACC's Q3 2019 Financial Results Conference Call. This conference is being recorded. Now at this time, I would

Operator

like to turn the conference over Quentin McMillan. Please go ahead.

Speaker 2

Thanks very much, and good morning. Today's remarks may include forward looking statements, which are subject to risks and uncertainties. To 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 to Actual results or events to differ materially. Except 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.

Speaker 2

Today's remarks may also include 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 to aig.com. Additionally, note that today's remarks will include 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 Corbridge Financial. AIG's segments and U. S.

Speaker 2

GAAP Financial Results to as well as AIG's key financial metrics with respect thereto differ from those reported by Corbridge Financial. Corbridge Financial will host its earnings call on Friday, November 3. To Finally, please note that today's remarks as they relate to net premiums written in general insurance are presented on a comparable basis, to which reflects year over year comparison on a constant dollar basis adjusted for the international lag elimination and the sale of Crop Risk Services and the sale of Validus Re. To Please refer to the footnote on Page 26 of the Q3 financial supplement for prior period results for Crop Risk Services and Validus Re. To Peter.

Speaker 2

With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino.

Speaker 3

Good morning, and thank you for joining us today to review our Q3 financial results. To Following my remarks, Sabre will provide more detail on the quarter, and then we will take questions. To Kevin Hogan and David McElroy will join us for the Q and A portion of the call. In the Q3, AIG continued to deliver exceptional results. To We made significant progress in our strategic, operational and financial objectives, reflecting continued execution to across our entire organization.

Speaker 3

During my remarks this morning, I will discuss the following topics. 1st, to AIG's financial results, including life and retirement and provide an update on recent divestitures. 2nd, to I will provide the results of AIG's general insurance business. 3rd, I will provide an update on the casualty insurance market more broadly to AIG's approach to our casualty portfolio. 4th, I will provide an update on our capital management strategy to the progress we have made this quarter.

Speaker 3

Sabra will provide more detail on AIG's balance sheet and capital position in her remarks. To And lastly, I will reconfirm our guidance with respect to our path to a 10% plus ROCE post deconsolidation of Corbridge. To Financial highlights from the Q3 included adjusted after tax income was $1,200,000,000 to for $1.61 per diluted common share, representing a 92% increase year over year. To Consolidated net investment income on an adjusted pretax income basis was $3,300,000,000 to a 29% increase year over year. In General Insurance, net investment income was $756,000,000 a 30% increase.

Speaker 3

To Net premiums written in general insurance grew 9%. General insurance underwriting income in the quarter was $611,000,000 to which improved over 2 50% from the prior year quarter. The adjusted accident year combined ratio, Excluding catastrophes was 86.3%, a 210 basis point improvement from the prior year quarter, which is an outstanding result. To Our cat loss ratio was 6.9% with $462,000,000 of total catastrophe losses, to Including reinstatement premiums, which include $70,000,000 from Validus Re. We had favorable prior year reserve development of to $39,000,000 reflecting favorable loss experience on our portfolio, resulting from our continued focus on underwriting discipline.

Speaker 3

To the Life and Retirement business also delivered strong results in the Q3 with continued sales momentum and spread expansion. To Life and Retirement's adjusted pre tax income was $971,000,000 up 24% year over year. To Premiums and deposits grew 4% year over year to $9,200,000,000 driven by strong fixed to index annuity sales, which exceeded $2,000,000,000 for the 3rd consecutive quarter. To September marked the 1 year anniversary of Corbridge's initial public offering. And since the IPO, Corbridge has returned approximately $1,400,000,000 to shareholders and is well on track to its committed payout ratio.

Speaker 3

With respect to our remaining ownership of Corbridge, to We continue to evaluate options that are aligned with the best interest of shareholders and our other stakeholders. We're very proud of the achievements that Corbrich has delivered towards its operational separation as a public company, and we remain committed to reducing our ownership and eventually to a full separation. Turning to AIG's balance sheet. During the quarter, AIG returned over $1,000,000,000 to shareholders through $785,000,000 of common stock repurchases and $261,000,000 of dividends. In addition, to We purchased $170,000,000 of common stock in October.

Speaker 3

We deployed $289,000,000 to retire Validus Re debt to prior to the close of the transaction yesterday. And we ended the quarter with $3,600,000,000 of parent liquidity. To During the quarter, we continue to make significant progress on our strategic repositioning as we have further simplified our portfolio, to which we've talked about over the past several quarters. Yesterday, we announced the successful closing of the sale of Validus Re to Renaissance Re to for which we received a total consideration of $3,300,000,000 in cash, including a pre close dividend to an approximately $275,000,000 in RenaissanceRe common stock. This divestiture streamlines our business model, to simplifies our portfolio and further reduces our volatility.

Speaker 3

Prior to closing the Validus Re transaction, to We entered into an agreement with NSTAR Group to provide AIG with protection against any adverse development on the 95% portion to Validus Re's loss reserves that AIG retains exposure to. The cost will be included in the gain on sale in the 4th quarter. To NSTAR will provide $400,000,000 of limit for an adverse development cover in excess of carried loss reserves on assumed reinsurance to contracts underwritten by Validus Re with respect to accident year 2022 prior. To This ADC limit provides additional protection against downside exposure to reserves in excess of the expected redundancy to a model confidence level above the 90th percentile. Importantly, while we believe this ADC is Prudent to mitigate the risk of any future adverse reserve development, we will benefit from any future favorable reserve development.

Speaker 3

To In August, Corbridge entered into a definitive agreement to sell Lea Healthcare to AXA for €650,000,000 to which closed on October 31. Proceeds to Corbridge net of purchase price adjustments and deal related to the operator. Expenses will be approximately $730,000,000 It was announced that the proceeds will be used for a special dividend to Corbridge shareholders to as of November 13. In September, Corbridge entered into a definitive agreement to sell the U. K.

Speaker 3

Life to the insurance business to AVEVA PLC for £460,000,000 We expect the transaction to close sometime in the Q2 of 2024 to subject to regulatory approvals. We anticipate that the proceeds from this transaction will largely be used for share repurchases to subject to market conditions. Both transactions streamline the Corbridge portfolio and allow the company to focus on its life retirement products and solutions to the United States. Turning to general insurance, gross premiums written were 8 point Increase of 1% from prior year quarter. Net premiums written were $6,500,000,000 an increase of 9% from the prior year quarter.

Speaker 3

Global commercial grew 6% and global personal grew 16% from the prior year quarter. To North America commercial net premiums written increased 5% in the 3rd quarter. There are many variables in this quarter and I want to provide more detail. To The key businesses that drove growth were Lexington's core business, excluding Lexington programs, to Grew over 25% in the quarter, led by wholesale casualty, which grew 33% and wholesale property, which grew 27%. To Glatfelter grew 12% and retail property grew 11%.

Speaker 3

In terms of headwinds, in 2022, to We made the underwriting decision to not renew 2 large Lexington programs. We took this action because we believe that these programs to had meaningful cat exposure in peak zones and we did not believe the appropriate cat loads were reflected in the pricing. To These programs were not the best deployment of capital in order to achieve our targeted risk adjusted returns. To Those non renewals tempered overall growth in Lexington. Lexington programs net premiums written reduced by 57% in the quarter.

Speaker 3

To We believe over time, we will replace this business on an individual risk basis as stronger risk adjusted returns. However, it is a headwind in the quarter. To The impact of the net premiums written associated with these two programs was approximately $115,000,000 in the 3rd quarter. To Also offsetting growth in North America was Financial Lines, which declined 11%, accounting for approximately 20% to of North America Commercial Lines net premiums written in the quarter. In North America Financial Lines, large account public to D and L remains competitive as a result of excess capacity driven by new entrants to the market.

Speaker 3

To Our renewal retention in our primary business remains strong, but retentions in our excess business were more challenged. To new business and our excess book was down year over year as we were very disciplined in the current environment. To Rate reductions remain most prevalent on excess layers, particularly the higher excess layer vertical towers, to where it's more commoditized and the most pressure exists on pricing. In primary, where we are one of the few market leaders, rates remain flat to slightly down. To We remain confident in our approach to financial lines.

Speaker 3

We have a global business with scale focused on underwriting profit topline growth, which is reflected in the results this quarter. In International Commercial, to Net premiums written grew 7%, primarily driven by property, which was up 13%, global specialty, which was up 12%, to led by Energy and Marine and Talbot, which was up 7%. Global Commercial had very strong renewal retention of 87 to and its in force portfolio. North America was up 200 basis points to 87% and international was up 300 basis points to 88%. To As a reminder, we calculate renewal retention prior to the impact of rate and exposure changes.

Speaker 3

To And across Global Commercial, we continue to see very strong new business, which was approximately $1,000,000,000 in the 3rd quarter. To North America Commercial produced new business of $516,000,000 an increase of 13% year over year or 27% to if you exclude financial lines. This growth was driven by Lexington Casualty, which saw excellent new business growth of over 90% to As well as Western World, which grew over 50%. Retail property grew new business by 26% to And Retail Casualty grew new business by 25%. This was offset by financial lines, where new business contracted by about 30% to as a result of our underwriting discipline.

Speaker 3

International Commercial produced new business of $532,000,000 or 12% growth year over year. To This growth was led by Talbot new business, which increased almost 50% year over year and global specialty, which grew new business by over 40% to And it was balanced across the portfolio. Moving to rate, in North America commercial, rate increased 5.4% in the 3rd quarter to or 6%, excluding workers' compensation. Exposure in the quarter added 3 points, bringing the total pricing change, excluding workers' comp, to 9%. To Rate increases were driven by Lexington Wholesale, which was up 15%, marking the 18th consecutive quarter of double digit rate increases, to led by Lexington Wholesale Property, which was up 28%, retail property was up 27% to And admitted excess casualty was up 12%.

Speaker 3

Financial lines rate was down 8%. In international commercial, rate increased 4% to And the exposure increase was 2%. The rate increase was driven by property, which was up 13% to Energy, which was up 10% and Talbot, which was up 9%. Turning to personal insurance, net premiums written increased 16% year over year, to Primarily driven by North America. In North America, personal net premiums written increased 59%.

Speaker 3

To Similar to last quarter, the increase was driven by business underwritten on behalf of PCS, offset by decreases in travel and warranty. To In the Q3, AIG's net premiums written from PCS increased by over 100%, benefiting from an increase in gross premiums written to a reduction in quarter share sessions. And as expected, the lagged earned premium growth continued to dissipate, to providing operating leverage and a reduced expense ratio primarily in general operating expenses. To The high and ultrahigh net worth business also had significant improvement in the accident year loss ratio, benefiting from improved pricing in our admitted business to and transitioning more business to the non emitting market. We expect PCS to continue to improve its financial performance and provide more operating leverage to George in the Q4 and into 2024.

Speaker 3

In International Personal, net premiums written increased by 3% year over year, to Driven by growth in personal auto, travel and that reflects the rebound post pandemic and Japan personal property. To The accident year loss ratio ex cat improved 560 basis points. Overall, we're pleased with the international personal improvement year over year. To Shifting to combined ratios, the General Insurance 3rd quarter combined ratio was 90.5%, a 6 80 basis point improvement from the prior year quarter. To Accenture combined ratio ex cats was 86.3%, a 210 basis point improvement from the prior year quarter.

Speaker 3

To Global Commercial had an outstanding performance with 3rd quarter accident year combined ratio ex catheter 81.7%, to a 130 basis point improvement year over year. The accident year combined ratio, including cat, was 89.7%, a 500 basis to some point improvement from the prior year quarter. The North America commercial accident year combined ratio ex cats was 83% to And the international commercial accident year combined ratio ex cats was 79.7%, both of which were exceptional outcomes. To We would like to provide a perspective both with and without Validus Re in Crop Risk Services. As I said, to The Q3 global commercial accident year combined ratio ex cat was 81.7% and the calendar year combined ratio was 86.6%.

Speaker 3

To Excluding Validus Re from the Q3 results, the global commercial accident year combined ratio would essentially have been flat to And the calendar year combined ratio would have improved by slightly over 100 basis points from the Q3 to 85.4%. To Ann. Ann, for the 1st 9 months, the global commercial accident year combined ratio ex cat was 83.6% to And the calendar year combined ratio was 87.6%. Excluding crop and Validus Re from the 9 month period results, to The global commercial accident year combined ratio ex cat would have increased by 70 basis points to 84.3% to And the calendar year combined ratio would have increased by 50 basis points to 88.1%. To Global Personal reported 3rd quarter accident year combined ratio ex cats of 99%, a 3 80 basis point improvement from the prior year quarter due in part to the North America PCS business.

Speaker 3

Related to casualty liability to In the excess casualty market, in particular in the United States, the level of narrative has increased over the last several years driven in part by multiple mass tort events to As well as rising economic and social inflation. The latter has been fueled by an exponential increase in third party litigation funding, to average severity trend increases and a precipitous rise in jury awards following a lull during the pandemic. To Over the past couple of years, I've spoken extensively about our portfolio remediation strategy, including where AIG has reduced gross limits since 2018 by 1 to $400,000,000,000 We have established strong underwriting guidelines and strong partnerships with reinsurers to manage both frequency and severity. To We have followed a similar strategy with our casualty portfolio with more of a focus on severity. When we began the underwriting turnaround in AIG in 2017, we found that the prior strategy in casualty was similar to that in the property business, to was to write large limits with a gross and net risk appetite much greater than what we offer today.

Speaker 3

To As I've outlined before, it was not uncommon to put out significant limits on any individual risk in excess of $100,000,000 net to on an occurrence basis. As we developed an entirely new framework and approach to underwriting, it required a change to our underwriting strategy. To Today, our global casualty portfolio represents 12% of our total gross premiums written and 13% of our net premiums written. To The North America segment represents 55% and the International segment represents 45% of that number. To And since North America has been the topic of discussion, I will focus on what we have done in that portfolio.

Speaker 3

In North America Casualty, to Our gross limit for our excess casualty portfolio, including LEED umbrella, has decreased by over 50% since 2018. To Our average limit size has also reduced by over 50%. Average lead attachment points, which protect us from frequency and lower severity losses, to have more than doubled since 2018. In terms of gross pricing, primary auto and primary general liability, to Rates have increased approximately 200% since 2018 and excess casualty rates have increased over 2 50%, to remaining well above loss cost trends. In addition to the significant investment in underwriting excellence and talent, to We built and executed on a strategic reinsurance program to further mitigate our net exposure and volatility.

Speaker 3

To What once was $100,000,000 net exposure for AIG is now a maximum net on any one claim of $15,000,000 in international to $11,500,000 in North America. And in our excess of loss treaties, we have reinstatement limits that exhaust based on extensive modeling done to at the 1 in a 1000 return periods. This adequately protects AIG from vertical exposure with significant limit available to in the event there are multiple losses. Notably, the period prior to 2016 is covered by an adverse development cover to for U. S.

Speaker 3

Long Tail Commercial Lines. We purchased 80 percent of a $25,000,000,000 excess of $25,000,000,000 on payments made to on or after January 1, 2016, for business written prior to 2016. The $25,000,000,000 retention was Seated during the Q4 of 2020. We currently have $9,000,000,000 of the total unused recoverable limit left to for $7,200,000,000 at the 80% level. Conflicting views have emerged in the market on the combination of gross portfolio underwriting with the strategic use of reinsurance.

Speaker 3

There have been comments particularly recently that the use of reinsurance is not required if you're comfortable with the gross portfolio. To We disagree and simply don't support that as a viable strategy for AIG. We prefer to balance our approach to and have developed a strong underwriting culture, which we have dramatically improved over the last 5 years, executing on the fundamentals to a disciplined and consistent underwriting, being very focused on preempting the evolving changes in the market and using reinsurance strategically to mitigate unpredictable outcomes, to Building long term strategic relationships with our reinsurance partners for all of our reinsurance needs to has been key to repositioning AIG. Insurers cannot reverse social and economic inflation. To However, we are in control of how we predict and respond to the impact of these changes to the forward looking landscape, including to how we manage our underwriting through coverage provided, limits deployed, attachment points and pricing.

Speaker 3

Our business is not immune from social inflation, to But we anticipated it early and we took action. The consequence is that we're very pleased with our existing portfolio to And we're well positioned to be able to prudently take advantage of opportunities that exist in the current marketplace. Turning to capital management, to We use a balanced framework that remains focused on having ample capital in our insurance company subsidiaries to support organic growth in our business, to continuing share repurchases, debt reduction in line with the lower end of the targets we provided and dividend increases. To Lastly, we will consider compelling inorganic growth opportunities to meet our strategic objectives should they emerge. To We finished the Q3 with $3,600,000,000 of available liquidity prior to receiving the proceeds of the sale of Validus Re or the special dividend to from the sale of Lea Healthcare.

Speaker 3

Together, they should contribute approximately another $3,700,000,000 in the 4th quarter. To our primary use of proceeds will be on share repurchases. We plan to accelerate our repurchase activity this quarter and as we enter 2024, to And we expect to reduce debt outstanding to further strengthen the balance sheet. We remain mindful of our leverage as a key consideration with our accelerated share repurchases. We expect to execute on the current share repurchase authorization of $7,500,000,000 to Which will reduce shares outstanding to close to 600,000,000 shares subject to market conditions.

Speaker 3

To Related to return on common equity, as we have outlined on our prior calls, we remain very focused on delivering a 10% plus ROCE to post deconsolidation of Corbridge. During the Q3, we continue to make significant progress at all four components of our path to deliver on this commitment and how we are positioning AIG for the future. I want to provide a few observations. In the last 90 days, to We've continued to improve our underwriting results on an accident year and calendar year basis. We made recent leadership changes in general insurance, to which have effectively eliminated management layer from the business and we will continue this process throughout the organization in 2024.

Speaker 3

To We have strengthened the capital position of insurance company subsidiaries to enable continued profitable growth. To We've moved into the final stages of the operational separation for Corbridge. We have announced and closed several divestitures and have repositioned the portfolio to support our strategy for the future. We have accelerated the progress we're making on our capital management strategy and have created a strong liquidity position. To The catalyst to achieving our targets remains the deconsolidation of Corbridge.

Speaker 3

This will allow AIG to simplify its business, to eliminate duplication by combining our general insurance business and our corporate functions and create a leaner operating model for the future. To Sabra. Before I turn it over to Sabra, I'd like to add a few more details on the closing of the sale of Validus Re to Renaissance Re. In January to Of 2018, AIG announced it was acquiring Validus Holdings to position it for future growth and profitability improvement. To Over the last several years, we reshaped Validus Re's portfolio by reducing the catastrophe exposure in certain U.

Speaker 3

S. Peak zones, to while diversifying the business significantly to develop a more balanced portfolio in both property and casualty reinsurance in order to improve profitability. To Validus Re posted its 1st accident year combined ratio below 100% in 2022. And as we look back, to We are grateful for the hard work, determination and perseverance of the team to dramatically improve the quality of the portfolio, Particularly year to date in 2023 and it's evident in its performance today. We are very proud of Validus Re's results to And are pleased that the company acquiring Validus Re as RenaissanceRe.

Speaker 3

Through Kevin O'Donnell and his leadership team's terrific work, to RenaissanceRe has become one of the world's most well respected reinsurers. We are looking forward to continuing our strong partnership with RenaissanceRe, which Which will be further enhanced as we become an investor in RenRe's capital partner vehicles, allowing us to benefit from their future performance. To Sabra.

Speaker 4

Thank you, Peter. This morning, I will provide more detail on AIG's Q3, including general insurance reserves, to net investment income, life and retirement results and balance sheet and capital management. Adjusted after tax income attributable to common shareholders this quarter was $1,200,000,000 up 80% from 3Q 'twenty two for an annualized adjusted ROCE of 8.5%. To AATI per diluted share was $1.61 up 92%, reflecting the accretive impact of share repurchases over the last year. To The earnings growth resulted from the 82% increase in general insurance adjusted pretax income to $1,400,000,000 to driven by top line growth, improved underwriting results and higher investment income.

Speaker 4

It's important to note that while life and retirement also had strong earnings, to AIG's ownership of Corbridge decreased to 65.6% this quarter compared to 90.1% before the IPO. To And therefore, our results include a lower percentage of their consolidated earnings than last year. In total, Corbridge contributed about $32,000,000 to the $514,000,000 increase in AIG's adjusted after tax income. Turning to General Insurance. Peter summarized our underwriting results, but I want to cover prior year development and reserves in more detail.

Speaker 4

In the quarter, to General Insurance prior year development, net of reinsurance, totaled $139,000,000 favorable, including $41,000,000 from to the presentation of deferred gain on the adverse development cover. About $129,000,000 including the ADC gain, to resulted from the detailed valuation reviews or DVRs with the balance from other items like catastrophes. To The DVRs covered $34,100,000,000 of loss reserves on a pre ADC basis, about 70% of the total. To The DVRs of particular note this quarter were for International Casualty and Financial Lines, North America Financial Lines and North America Workers' Compensation, to which last year was completed in the Q2. In total, North America had $154,000,000 of favorable development, to Including $39,000,000 from the ADC.

Speaker 4

International was $15,000,000 unfavorable. To Consistent with our prior comments, casualty, bodily injury, securities class actions and medical workers' comp trends have been to and continue to be more favorable than our reserving assumptions. We believe that our changes in underwriting standards, reduced limits, to the operator. Higher attachment points on primary limits, tightened terms and conditions and better risk selection are driving the improved experience, particularly in Financial Lines and Casualty. To Nevertheless, our philosophy is to react to bad news quickly and to allow time for favorable trends in recent accident years to mature, to particularly given the impact of COVID on recent years.

Speaker 4

Therefore, this quarter's favorable development is generally from older accident years to Or from short tail lines like property, where physical damage claims come in quickly. In financial lines, changes from the DVRs were immaterial. To North America had modest adverse development on an older Lexington Architect and Engineers book, offset by favorability in Canada. To U. K.

Speaker 4

Financial Lines had slight adverse development, reflecting emerged experience on older D and O and professional indemnity claims, to Partially offset by favorable experience in Europe and Japan. We also reviewed international casualty lines this quarter. To Peter discussed our changes in underwriting limits and reinsurance on our global casualty book. I would add that we also evaluate economic and social to inflation trends as well as our potential exposure to mass torts across the total book and hold reserves to address those items. To This quarter, we had adverse development in UK and European casualty, principally from commercial auto in France to and large loss experience in a few older claims in both the U.

Speaker 4

K. And Europe. Consistent with prior trends, to The DVRs for workers' compensation were favorable, both for years covered by the ADC and after. To Finally, Property Lines and Personal Insurance had favorable development in both North America and International, while we had about $23,000,000 of adverse development on prior year to Catastrophes. We will complete the balance of annual DVRs next quarter, which cover about $6,000,000,000 of reserves on a number of smaller lines.

Speaker 4

To Net investment income also contributed to earnings growth in the quarter, driven principally by higher reinvestment rates on fixed maturities and loans. To The average new money yield on fixed maturities and loans was 5.88% this quarter, about 145 basis points above the yield on sales and maturities, to Ann. It was about 130 basis points 150 basis points higher in General Insurance and Life and Retirement respectively. To Year to date, the total new money yield is about 202 basis points higher than sales and maturities. The portfolio yield in general insurance increased to 9 basis points sequentially and 88 basis points over the last year with net investment income growth of 30%.

Speaker 4

To L and R investment income rose 23% and the portfolio yield improved 9 basis points and 63 basis points, respectively. To based on the current treasury yield curve, we expect continued pickup in portfolio yields, particularly in LNR given the longer duration of its portfolio. To Alternative investment income totaled $26,000,000 for an annualized return of about 1%, better than the losses last year, to but below our long term experience and outlook and down sequentially. Private equity returns are the principal driver of sequential decline in to return to returns this year as we have reduced our exposure to hedge funds over the last year. Private equity is reported on a 1 quarter lag to based on when we receive the Fund's financial reports.

Speaker 4

So this quarter's financial results reflect 2nd quarter markets. Our investment portfolios have strong credit performance and remain well diversified and highly rated. We continue to monitor commercial real estate closely. To Debt service coverage ratios are strong, including in the office sector. The primary impact has been on loan to value ratios and real estate equity valuations to rather than delinquencies or defaults.

Speaker 4

We continue to work on near term maturities, and almost all 2023 scheduled maturities to have been addressed. Life and Retirement once again delivered strong results in the 3rd quarter. To Adjusted pretax income was $971,000,000 up 24% year over year, driven by continued investment spread expansion and strong sales, to particularly in fixed index annuities. Underwriting margins overall remain attractive and on a sequential quarter basis, to The income and investment spreads improved. During the quarter, the annual actuarial assumptions update was completed, to Resulting in a modest $22,000,000 increase in APTI, mostly in the life insurance segment compared to a $29,000,000 increase last year.

Speaker 4

To Individual retirement APTI increased $195,000,000 or 52% over the prior year quarter to from base spread expansion and general account product growth. The fixed annuity surrender rate increased sequentially from 15.9% to 17.7% this quarter as operations caught up on a backlog of surrender requests from earlier in the year. To On a monthly basis, surrenders peaked early in the quarter and declined sequentially each month with continued improvement in October. To Group Retirement APTI was flat year over year as higher fee income and alternative investment income were offset by lower other yield enhancement income and to higher general operating expenses or GOE. Net outflows included 1 large $1,000,000,000 plan, which was mostly in mutual funds and therefore was not to earnings.

Speaker 4

Life insurance APT was also flat year over year, primarily due to lower policy fees to and a lower favorable impact from the annual assumptions update, partially offset by higher net investment income. To Institutional Markets APTI decreased $8,000,000 or 10% due to less favorable mortality experience. To Sales increased 19%, supported by record GIC production of $1,900,000,000 partially offset by lower PRT sales, to which are highly variable quarter to quarter. Turning to other operations. 3rd quarter adjusted pretax loss to Jim.

Speaker 4

Improved by $149,000,000 driven by lower corporate and other GOE and higher short term investment income. In addition, to Q3 2022 had investment losses on a legacy portfolio that was sold in 4Q 2022. To Corporate GOE was $243,000,000 and included $68,000,000 for Corbridge. Excluding Corbridge, AIG corporate GOE decreased 50 $6,000,000 from the prior year. We remain on track to reduce 2023 corporate GOE by at least $100,000,000 to including a higher allocation to general insurance that has not had a material impact on the expense ratio due to expense discipline across the company.

Speaker 4

To Moving to the balance sheet. Q3 2023 estimated risk based capital ratios remain above our target ranges. To the general insurance U. S. Pool RBC is in the high 400s, while life and retirement is above its 400% target.

Speaker 4

To At September 30, consolidated debt and preferred stock to total capital, excluding AOCI, was 25.9%, to including $9,400,000,000 of corporate debt. Our approach to capital management is unchanged. To We will continue to balance share repurchases and debt reduction, while also focusing on increasing common stock dividends. To As Peter indicated, from the Validus and LAYA sales, we expect about $3,700,000,000 of additional parent liquidity in the 4th quarter. To We have significant financial flexibility, which we intend to use for both additional share repurchases and debt reduction.

Speaker 4

To Based on current average daily trading volumes, we expect to be able to repurchase about $1,500,000,000 of common stock a quarter to for $500,000,000 a month, which we will begin when the market window opens after earnings. We expect to continue at this rate into 2024, depending on excess parent liquidity levels, including future Corbridge sales proceeds and general insurance dividends. To In the Q4, we also plan to accelerate debt repayment to right size our debt stock for our target deconsolidated leverage ratio. To Turning to our ROCE target. We remain laser focused and are making progress on achieving a 10% plus ROCE post deconsolidation.

Speaker 4

Year to date, annualized adjusted ROCE for AIG was 8.8% to And12.0 percent in general insurance and 11.4% in life and retirement. Last At quarter, I provided a pro form a AIG shareholders' equity ex AOCI, excluding Corbridge, of about $40,000,000,000 to Including deferred tax assets from the Financial Crisis Era net operating losses. That's the capital supporting our general insurance business to parent operations today, excluding our stake in Corbridge. With the sale of Validus Re and the redeployment of proceeds to the company's financial results. The current pro form a estimate of AIG Equity, excluding Corbridge, is about $37,000,000,000 to including $4,000,000,000 of deferred tax assets or $33,000,000,000 of adjusted shareholders' equity, to which is the number we use for calculating adjusted ROCE.

Speaker 4

Considering this equity level and our plans to simplify AIG's business and operational to the financial structure and to drive more predictable and sustainable profitability, we are confident that we will achieve our 10% plus adjusted ROCE goal. We look forward to continuing to update you on our progress. With that, I will turn the call back over to Peter.

Speaker 3

To Thanks, Sabra. And Michelle, we're ready for questions.

Speaker 5

Thank to questions. Our first question comes from Meyer Shields with KBW. Your line is open.

Speaker 6

To Great. Thanks and good morning. One question to start on reserves, I guess. What's the process for ensuring to That the adverse development in international commercial doesn't actually reflect social inflation problem and that it's to individual cases.

Speaker 3

Good morning, Maher. Thanks for the question. Sabra, do you want to cover just a quick to An overview of, Meredith mentioned the international and some of the inflation impact from reserves.

Speaker 7

To Yes, certainly. And let me first start by explaining what the DVR process is. So DVR is a once a year deep dive into our reserves. To But each quarter, we do an actual versus expected analysis. So we do make adjustments to reserves to on lines of business during the ordinary part of the year, but the deep dive is where we really drill down into the lines in great detail.

Speaker 7

To This quarter, as I noted, we had international casualty. The development that you see is related to very specific books to And I'm sorry, I'm getting a little feedback on the line here. So I don't know Meyer, if maybe you need to mute. Anyway, in international commercial line, it is very much to related to specific cases and judgments around settlements. And as I said, and would also note in Peter's comment, These are generally from older accident years where we are exposed to much larger limits.

Speaker 7

So therefore, when you have a particular to claims that goes against you, they do they are lumpy and they tend to be large. So what I would just say again is that we look at our book to consistently during the course of the year, do a deep dive once a year and then make some assessments based on specific facts and

Speaker 3

circumstances. To Thanks, Sabra. Mary, do you have another question?

Operator

Yes. Just a quick one. I know there's

Speaker 6

a lot of moving parts in North America Personal. I was hoping you could give us some sense of to maybe true underlying underwriting results and the path to profitability in that segment.

Speaker 3

To Great. Thank you. As we've talked about before, it's a business in transition. We're not pleased with the overall printed results. To But we had outlined in the past that it's complicated.

Speaker 3

2023 would be a transition year, particularly with PCS, to Which we see a lot of net premium written coming in each quarter. The earned will follow and so we should have some significant benefit on the ratios to As we fully earn in the premium over the coming quarters. When we look at Q4 2023 to And into 2024, we will see the mix of business change. And so therefore, the overall to GOE and acquisition expenses should come down. We would see the accident year loss ratio ex cat slightly go up just because of the mix to Of what PCS is underwriting, we did have some one time items that I won't to go into in the quarter that were headwinds in the travel warranty business.

Speaker 3

But those businesses are going to have to contribute more to As we get into 2024 and we're looking at the entire business model in order to improve their financial results. So we recognize to The overall segment needs to improve. We believe we have the sort of business strategic alternatives in place and And we're going to be executing them and again it's just a choppy year as we make that transition.

Speaker 6

Okay, fantastic. Thank you so much.

Speaker 3

To Thanks. Next question.

Speaker 5

Thank you. Our next question comes from Gary Ransom with Dowling Partners. Your line is open.

Speaker 2

To Yes, good morning. I wanted to ask about financial lines. On the one hand, you noted that rates are going down in that to Segment. And on the other hand, you were talking about social inflation. And I mean, just generally, it seems to be as worrisome to As ever.

Speaker 2

I know your reserves held up this quarter, but it's like we're in a soft market for those financial lines. And I wondered if you could add some more Paul on how you're managing through that portion of the cycle for

Speaker 3

the business. Sure. Yes. Thanks, Gary, for the question. And Pete.

Speaker 3

I'll have Dave make some specific comments. When we talk about the headwinds in Financial Lines, and again, Dave will go into it, but it's Primarily North America and it's primarily excess. We've done a tremendous job over the past couple of years to reposition the business to And not only with the underwriting, but also with cumulative rate. And so we still think there's margin, still think our scale to And balance across the world is a competitive advantage. And when we talk about some of the challenges, financial lines, it's really specific to North America.

Speaker 3

To Dave, do you want to provide some context in a little bit more detail, please?

Speaker 8

Yes, yes. Thank you, Peter, and thank you, Gary. To This is obviously a business that I've got a lot of scar tissue in over a lot of 40 years of this. And I sometimes think of my career credibility tied into fixing this book, but I am very confident to With where we have positioned the book, okay. We've taken a cautious approach to the large Town Public Company D and O Business and particularly excess Gary that you've referred to.

Speaker 8

So we're aware of the consequences of chasing volume, Okay. We've seen companies go close to the sun, they burn out. We're that's our sophistication. So to What we're doing here, private public company D and O, the market, to The private the primary market is frankly a stable market, okay. It's holding up well.

Speaker 8

To Chemina rate increases, even though they went up 120% from the 2018 to 2021 year, they're trending around 85% today and they're holding, to Okay. This is going to be about a story about excess. And I do want to frame this that to In that primary market, there are a couple of key points that are also holding and that's retentions are holding up very nicely. Okay. There hasn't been an erosion in the self insured retentions that clients are keeping.

Speaker 8

And we look at that as Sort of an acting hedge against legal cost inflation. And then the other fact that, I've always been worried about is the arms race back to to Limits. And this industry did a great job and I believe there was respect to For this volatility by taking $25,000,000 limits down to 10s and $15,000,000 down to 5. So even today, to Our portfolio is in the 80% to 90% range of those limits on a primary basis. And therefore, the arms race to increasing limits, which is often led by those who may not understand to The volatility that has not happened, okay.

Speaker 8

So that's a win for the primary. I'm going to be I'll call out the excess because the Tess, because the battles and the competition in this market are classic, okay. These are tranches above $50,000,000 It's a commodity. We're seeing more competition there. And what we're going to do is we're going to do what we've been doing, reducing our limits, to Reducing our policy count.

Speaker 8

Our renewal retention right now is actually running 11 points lower than what would be normal to you. In a standard market and we're going to continue that way, not only on a policy count basis, to But in aggregate basis. The two things I just call out, everybody knows that I've lived in this business for a bit. To I call out the claim environment in the market, okay. The market may be mistiming the pricing of Chris Layers, okay.

Speaker 8

The plaintiff's bar has circled back to large account securities class actions that are actually up this year to And looking more like the 2016 to 2019 cohort years, which are problematic for the industry versus the 2022 years. To So it's one to be concerned about because that verticality of loss will actually affect the excess towers to That are not going to be making money at $8,000 a 1,000 a 1,000. So this environment is not conducive to be putting out limits to Chris at those layers. And maybe the more important thing is about our AIG Global book, okay. It is a formidable asset to And we had the heightened scrutiny on the North American book.

Speaker 8

We're confident around what that looks like. But The international book is a franchise that you could not duplicate in generations. It's performed better than the U. S. To It's actually larger than the U.

Speaker 8

S. Book. It actually represents 60% of our total volume in the world. It has more geographic to Spread, particularly in Europe and Asia Pac, and it actually catches more private company business, SME business, to And middle market cyber business than you might think in North America. So and other than some of the London subscription pricing, to The pricing pressure there has been de minimis and in fact our rates are holding up better than 2023.

Speaker 8

So I always feel like when I got here, I didn't understand the impact and the power, but the AIG global franchise to It's an incredible asset and it also is one that we have coordinated better to make sure that any sort of U. S. Exposures are controlled collectively by both of us. So in some special asset, to. It's been built over 2 generations.

Speaker 8

We like what it is. We like the portfolio today. And it's to There's been 5 years of work to frame this book to where we all trust it and we trust the recent years to Peter for their performance. Okay. Kicking back to you, Peter.

Speaker 8

I know I went long.

Speaker 3

Thank you, David. Very thorough. Appreciate it.

Speaker 2

To I've got a very thorough answer. I'm good. I'm good with that.

Speaker 8

Thank you.

Speaker 3

Thanks. Next question, please.

Speaker 5

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

Speaker 9

Hi, good morning. First one I have for you is on sort of capital management related to core bridge separation. I appreciate to There's volume constraints and it's good to have some guidance around how much capacity you can do in terms of buybacks a quarter. To I didn't want to probe you a bit on to what degree if at all that considers further sell down at CoreBridge and sort of to further special dividends coming out of core region. So for us, I mean, I think the math would tell us that you could to potentially do more than $1,500,000,000 a quarter, particularly for next year over 4 quarters.

Speaker 9

And

Operator

to Yes.

Speaker 9

I'm just a little sensitive to it because it affects sort of accretion dilution and just the lag and what to expect. So I want to make sure we have appropriate to expectations around the timing of that share count reduction and so forth. Any help? Very appreciate.

Speaker 3

To Yes. Thanks very much for the question. I mean, we tried to provide between Sabra's script in my prepared remarks to A lot of detail on capital management and also the additional liquidity we're going to have from the special dividend from the to Validus Re disposition and overall how we intend to use those proceeds. And it remains the same is to We want to make sure that we provide ample capital in our subsidiaries to continue to drive growth. To We still think there's great opportunities for us in the businesses that we're in to drive top line growth and continue to drive to profit growth and more margin, and that is our primary focus.

Speaker 3

We've also given guidance in terms of to The share count and clearly with the $7,500,000,000 of share authorization and now with the liquidity that we've outlined, to We have a path towards that lower end of the $600,000,000 And so when we think about the next several quarters, certainly that's going to be the priority. Sabra and I alluded to the fact that we still want to clean up a little bit of debt, and make sure that we're at the lower end of the ratios, but also to I think that buying back shares is going to have an impact on your leverage and making certain that we are being to Thoughtful, prudent and getting ahead of that. In terms of the core bridge sell down, I mean, we've been very methodical. Certainly, we would like to do something in the Q4. We continue to look at all the different alternatives in terms of size and how we can do it.

Speaker 3

And it will be a priority for us to focus on when we conclude this call and start to focus into next week. I mean, CoreBridge has done a terrific job to Of setting itself up as a public company and they're ready for deconsolidation in terms of their operations, But we want to make certain that we are very thoughtful in the current environment. And again, we'll use those proceeds to continue to accelerate to what we've outlined on the capital management. I would expect as we do a secondary, when we get on future calls, to We'll update and refresh some of the capital structure and also our guidance to see if we need to revise it. But I think that's probably all I can give you at this point.

Speaker 9

Yes, that's helpful. Thank you for that. Second question I had is on the to I guess at the operating company level on the Remainco general insurance side of things, to Where do you see those metrics over time? I mean, one of the things that I've looked at is just decomposing to The ROE and the underwriting leverage itself seems lower at AIG, which made all the sense in the world as you guys had more volatility. But as you sort of expressed in your opening comments and as you guys have sort of proven out, the volatility is significantly reduced.

Speaker 9

So Where can that go to over time? What are the right metrics for us to look at? Is it RBC, premium to surplus? To Any help on thinking through how much more business you could write on the equity you have?

Speaker 3

To Yes. Well, we could write significantly more business based on the capital we have in the subsidiaries today. We have a lot of moving pieces. I mean, certainly, Selling Validus Re gives us a lot more flexibility in terms of how we position the portfolio for next year. And so I'll give you a couple of examples of that is that we to Underwrite Property Business where we pick up cat across the world, whether it's Japan, in our international business, to Lexington, through Talbot, through our retail in North America.

Speaker 3

But we always had to be very cautious in terms of the overall to in terms of how it correlated with Validus Re and including our reinsurance purchasing, where we had certain retentions that might be lower than what our risk to Tolerance would assume within North America and International, we bought ILWs that benefit of the group. And so like as we think about how we reposition the portfolio, I believe we have significant amount of aggregate. We have a significant amount of capital. We have businesses that are positioned to propel growth and want to focus on that. Now to Maybe the first part of your question is what type of leverage or how can you improve it.

Speaker 3

We recognize we have an expense issue. I mean, when we look at to The overall combination of our corporate expenses plus the expenses that sit in the business, yes, there's a little bit of a mix issue that when you look at some of the personal insurance, which are great to This is in. International may have a little bit more acquisition and GOE. But by and large, we need to get expenses out. And to That's the focus.

Speaker 3

That'll be the leverage in terms of contributing to ROE and also getting a future state business that is leaner to And does not have duplication across the world.

Speaker 6

I

Speaker 3

mean, so that's the work we've been doing this year. To We will be positioned pre deconsolidation to start implementing that operating model. But I think the leverage is we have enough capital to grow and we'll continue to grow the top line where We like to risk adjusted returns, less volatility because we don't have a reinsurance business anymore. So we can do things a little bit differently on the to primary side and we know we have expenses that need to get out and we're going to get them out and that's going to drive us north of the 10% ROCE.

Speaker 9

To Thank you.

Speaker 3

Take one more question.

Speaker 5

Thank you. To. Our next question comes from Michael Zaremski with BMO. Your line is open.

Speaker 6

Hey, great. Good morning. To My question is kind of on some points that were touched on already, on the portfolio transformation strategy, which has obviously been successful to over the past 5 years. So, Peter, you used the keyword trillions. You said $1,400,000,000,000 to Limit reduction.

Speaker 6

So just curious, I think David gave us a flavor of this answer, but does that is there a way to frame to what percentage limit reduction your average the IG's average policy is? It sounds like David said it's over 50% in some of those to financial lines and just related like how was that was AIG an outlier previously and you've moved towards the market or just how has this changed your competitive position in the marketplace?

Speaker 3

Yes. I think you recognize to How we were able to reduce volatility, when you have I have to even pause when I have to write out $1,000,000,000,000 because it's a big number and one point to $4,000,000,000,000 of limit. I don't think that's been done in our business before and then reposition a portfolio to drive significant profitability improvement. To It absolutely was an outlier. Its gross limit deployment and net limit deployment was significant relative to any of its competitors.

Speaker 3

And in order to to have the type of predictable results we've been able to produce over the past couple of years when you see the relative improvement as well as absolute improvement, to Paul. We are really proud of that. You had to take out the volatility, which was the outsized limits, not only from a gross perspective. And we recognize that to While we talk about it is that, yes, we're a buyer reinsurance, it's strategic, it matters, but it's not what's driving the results. So Jon, the results is the gross underwriting and the overall reduction.

Speaker 3

Everywhere you look, property, casualty, financial line, everything is 50% plus to A reduction of gross limits and then you add on reinsurance to temper volatility. That's how we've been able to position the portfolio to have not only to significantly improved results, less volatility. It's also very sustainable and we believe that there's opportunities for further improvement.

Speaker 6

To Okay, great. And one last, if I may, is on, there's been a lot of leadership changes over the past, to Right, years and quarters. I think Sabra used the term simplify structure. I guess any color you can offer on, are we to Is the structure simplified where like baseball ending 4 or 9 or to Any comments would be helpful. Thank you.

Speaker 3

Sure. Look, we've had a lot of change over the last 5 years. When I look at our overall Tristan, it's at all time low. We've had a couple of senior executives that we brought into position the organization for to the future and believe that the underwriting structure that we put forward is going to be with us for a couple of years. It's going to drive the performance that we become accustomed to Tim Tu, and we'll continue to bring in skill sets in the organization that supplement what we already have in order to position us for the future.

Speaker 3

So I'm like really very pleased. As I said, we have very low attrition, continue to upgrade talent across the organization, to people want to come work here, which is a really positive attribute of the organization and how we position it for the future. To So thank you. I do have one closing remark. First of all, I'm very proud and I'd like to thank all of our colleagues for their efforts to all that they've done to progress our strategic plans and deliver consistently strong financial results, very proud of them.

Speaker 3

To I would like to say a few words about our former Chief Financial Officer, Shane Fitzsimons, who passed away on Friday, October 27. Shane had a brilliant career. To He was highly thought of in the global business community and quickly earned the trust and respect of the insurance industry, which is not easy to do. To Shane. He was a cherished colleague here at AIG.

Speaker 3

Shane brought energy, integrity and a very positive attitude that was both contagious and inspiring. To He is a big reason why AIG is where it is today. Shane was a great friend to many of us and we're so grateful for all that he did for AIG, to our stakeholders and our colleagues. Thank you and have a great day.

Speaker 5

To Thank you for your participation. This does conclude the program and you may now disconnect. Everyone have a great day.

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