The Operator welcomed listeners to AIG's Second Quarter 2023 Financial Results Conference Call and handed the call over to Quentin McMillan. McMillan provided a disclaimer about forward-looking statements and non-GAAP financial measures, as well as an explanation for the lag elimination in International. He then announced that AIG will continue to report results for its Life and Retirement segment and Other Operations in the same way until the deconsolidation of Corebridge Financial, and that Corebridge Financial will host its own earnings call on August 4. Lastly, McMillan turned the call over to the Chairman and CEO, Peter Zaffino.

Peter Zaffino reports that AIG had a strong second quarter with adjusted after-tax income of $1.3 billion and net premiums written in General Insurance growing 11%. Underwriting income was $600 million and the adjusted accident year combined ratio ex-CATs was 88%. Life and Retirement reported an adjusted pre-tax income of $991 million and premiums and deposits of over $10 billion. Consolidated net investment income on an APTI basis was $3.3 billion, a 31% increase year-over-year.

AIG returned $822 million to shareholders in the second quarter, and the Board of Directors approved an increase to the share buyback authorization to $7.5 billion. Additionally, AIG took strategic actions such as divesting Validus Re and Crop Risk Services, launching Private Client Select, and taking actions with respect to Corebridge. They also expect to close the transaction with RenaissanceRe in the fourth quarter, subject to regulatory approval. Lastly, AIG ended the quarter with $4.3 billion in parent liquidity.

AIG acquired Validus Re in 2018 and since then have re-underwritten the portfolio, changed the business mix, and improved profitability. The divestiture of Validus Re to RenRe will streamline AIG's business model, simplify the structure of their global portfolio, reduce volatility, generate additional liquidity and capital efficiencies, and accelerate their capital management strategy. Post-closing, the PMLs will significantly reduce due to the rigorous enterprise-wide modeling exercise using RMS version 21.

AIG's analysis of the sale of Validus Re showed that the company's PMLs would be reduced by 45-85% at the one in 250 return period and by 50-70% at the one in 100 return period. Additionally, AIG will receive $900 million above the book value of Validus Re, $200 million in excess capital, and a $1 billion intercompany loan from Validus Re to AIG. AIG will also benefit from a $400 million reduction in risk based capital requirements. The company will retain 95% of future reserve changes in the portfolio delivered at closing.

AIG has announced and closed the sale of Crop Risk Services to American Financial Group for $240 million in cash and has launched the MGA Private Client Select (now PCS). AIG has also completed a secondary offering of Corebridge common stock with gross proceeds of $1.2 billion. AIG is pleased with the progress they have made and are well positioned to accelerate the business plan through the remainder of the year. They will benefit from future reserve releases and will likely purchase an adverse development cover prior to closing to minimize potential future reserve exposure.

In June, Corebridge announced and paid a $400 million special dividend and repurchased $200 million of stock from AIG and Blackstone, resulting in AIG's net proceeds of $540 million. Corebridge's ownership stake in Corebridge was approximately 65%. The sale process for Laya Healthcare, a private medical insurance business in Ireland, is proceeding well and the proceeds will be used for a special dividend. Additionally, advisers have been retained to analyze strategic alternatives for the disposition of the U.K. Life business. In the second quarter, gross premiums written for Global Commercial increased 15% and Global Personal decreased 1%, while net premiums written increased 11%.

AIG saw strong growth in the second quarter, with Global Commercial growing 13% and Global Personal 5%. In North America Commercial, net premiums written grew 18%, driven by Retail Property (50% growth), Validus Re (32%) and Lexington (18%). Lexington's growth was driven by 38% growth in Property and 41% in Casualty, while International Commercial's growth was driven by Property (34%) and Talbot (17%). Renewal retention across Global Commercial was 88%, with North America and International both increasing 200 basis points. New business in North America Commercial was $600 million, an increase of 10%, while International Commercial new business was $485 million, a 5% increase.

In the second quarter, Talbot and Property new business increased by over 100% and 40%, respectively, while Financial Lines new business contracted by over 20%. North America Commercial rate increased 8%, while International Commercial rate increased 9%. In North America Personal, net premiums written increased 17%, with PCG net premiums written growing over 60%. AIG's high and ultra-high net worth business components are expected to improve financial performance for AIG in 2023.

AIG has seen a significant increase in net premiums written over the past few years, and this is expected to continue over the remainder of the year. Earned premiums have grown, providing operating leverage, and costs from the transition of PCG to an MGA are expected to be eliminated over the next 18 months. The accident year loss ratio for high and ultra-high net worth business should improve with improved pricing and more business migrating to the non-admitted market. In International Personal, net premiums written increased 1% year-over-year. The second quarter accident year combined ratio ex-CATs improved year-over-year, with a 50 basis point improvement in Global Commercial, and a 310 basis point improvement in North America Commercial.

The International Commercial accident year combined ratio ex-CATs was 83.1%, and Global Personal reported a 98.1% combined ratio ex-CATs. Mid-year reinsurance renewals were placed successfully and the market was more orderly compared to January 1. Property cat pricing in the U.S. increased 25-35% year-over-year, while international renewals experienced 20-50% increases. The industry has already experienced over $50 billion of insured losses due to secondary perils, making 2023 the fourth highest year on an inflation adjusted basis.

The company is managing its risk and reinsurance spend conservatively despite the difficult US insurance market. They are exiting the assumed reinsurance business but still benefiting from partnering with a world-class reinsurer. They had strong results in the second quarter with record Fixed Index Annuity sales and a strong balance sheet. They are making progress towards the operational separation of Corebridge, with 55% of transition service agreements already exited and IT separation expected to be complete by the end of the year. Lastly, they are focused on capital management.

In the second quarter, AIG returned over $1.2 billion to shareholders through common stock repurchases and dividends. The company is committed to having a leverage ratio in the low 20s and a share count between 600 million to 650 million post deconsolidation of Corebridge and delivering a 10% plus ROCE post deconsolidation of Corebridge. The company is restructuring its organization to become a leading global insurance company with a leaner and better defined parent company. Proceeds from divestitures will be used for share repurchases and reducing debt.

In the second quarter of the year, AIG saw an increase in adjusted after-tax income of 15%, or an annualized adjusted ROCE of 9.4%. The increase was attributed to strong underwriting margins, higher net investment income in General Insurance, increased base investment yields and spreads, and strong sales in Life and Retirement. Reinvestment rates are driving higher yields, with the average new money yield being 5.46%, 210 basis points above the yield on sales and maturities.

This quarter saw improved alternative investment returns totaling $147 million for an annualized return of 6.0%, with more upgrades than downgrades in fixed maturity portfolios and de-risking of lower-rated assets. APTI was $1.3 billion, up $62 million from the prior year, with net investment income rising by $267 million and underwriting income for the current accident year, excluding catastrophe losses, being $73 million. Total catastrophe losses were $250 million, up $129 million, mostly from U.S. events and Typhoon Mawar. North America casualty DVRs were conducted, focusing on changes in frequency and severity trends, with the book of casualty bodily injury and medical workers' comp trends being more favorable than reserving assumptions.

AIG has taken a conservative approach to claims development for COVID-related years, lagging their development factors to allow for more time for claims to mature. This quarter, prior year development net of reinsurance and prior year premiums was $25 million favorable. This was made up of $115 million of favorable loss reserve development, partially offset by $90 million of prior year return premium. In the third quarter, DVRs will cover nearly 70% of reserves, including Financial Lines, which is attributed to improved underwriting, better loss selection, continued ventilation of risk, their reinsurance strategy, and rate adjustments.

AIG's financial lines portfolio for corporate and national accounts have seen compounded increases greater than 60% and 50%, respectively. Life and Retirement saw strong results in the second quarter with APTI up 30%, driven by higher spread in underwriting margins and strong sales in Fixed Index Annuities. Institutional markets also delivered strong results with APTI up 65%, driven by investment income and reserve growth. Premiums and deposits reached $2.9 billion, with $1.9 billion of pension risk transfer activity and $970 million of GIC transactions.

AIG reported an improved second quarter pre-tax loss of $41 million, driven by the sale of legacy investments. Corporate general operating expenses were $242 million, including $67 million of Corebridge expenses. AIG has a strong balance sheet, with a $4.3 billion liquidity, and a ROCE of 9.1% on a consolidated basis and 11.8% and 11.4% in General Insurance and Life and Retirement, respectively. Capital management and rightsizing the equity base are seen as key levers in achieving the 10%+ adjusted ROCE goal.

AIG is committed to reducing its share count to between 600 and 650 million shares post deconsolidation, and is confident that it will achieve its adjusted ROCE goal. The company is accelerating share repurchases in the fourth quarter and into 2024 with additional liquidity from Validus proceeds and ordinary course liquidity, while also reducing debt. AIG estimates a pro forma GAAP equity base of approximately $40 billion for AIG ex-Corebridge, which includes $4 billion in deferred tax asset NOLs excluded for adjusted common shareholders' equity calculation.

Peter Zaffino is pleased with the overall growth across the world and retention is up. In North America, Validus Re was up 32%, Lexington had 18% growth, and Casualty and Property were up 40% and 35% respectively. In International, Property was up 17% and Specialty was up mid-single digits. Financial Lines was down 10% in North America and flat in International.

Peter Zaffino explains that AIG has reduced its gross exposure by over $1 trillion, mostly in property, which has lowered PMLs across all return periods. He also mentions the reinsurance programs AIG has purchased, which are of a high quality and do not have a lot of net exposure. Lastly, he states that the Validus Re example shows that there is less CAT exposure and that the company is looking to reduce volatility even further through reinsurance.

Peter Zaffino discussed rate increases and loss trends from the first quarter to the second quarter of this year, stating that he is pleased with the company's discipline in driving rates above loss costs. He reported that North America and International had a rate environment of 9%, with the headwind for rate in North America being Financial Lines. International was not experiencing the same rate issues.

Lexington has seen a record number of submissions for its specialty casualty business, and the company has been focusing on creating value for its distribution partners and wholesale brokers. The growth opportunity for the property line is strong, and the performance has been good. The company is deploying property with an aggregate that is expected to increase in the back half of the year.

Peter Zaffino explains that Validus was accretive to the combined ratio by over 100 basis points in the quarter, with the loss ratio being slightly below average due to market dynamics. He also notes that Lexington Specialty and Property are more accretive than Validus Re, and that the company was able to publish a combined ratio below 100 for the first time in the last three to four years.

Peter Zaffino clarifies that the business has performed positively in the first half of the year, but still has room for improvement. He also states that the index will not have a major impact on the business. He then goes on to explain that the company is aiming to deconsolidate before the end of the year, subject to market conditions. He also mentions that Corebridge is performing well and is ready to become a standalone public company. Lastly, he explains that share repurchases and ordinary dividends are being used for capital management.

Peter Zaffino states that the current board structure would require a percentage below 45% for deconsolidation. He then outlines the four components of capital deployment, which includes increasing the dividend, reducing debt, and share repurchases in the third quarter. The goal is to reach a share count of 600 million to 650 million.

Peter Zaffino and Sabra Purtill have both commented that the U.S. risk based capital ratios are in the range of 470%-480%, which is well above the target range of 400%-420%. They have ample capacity within the General Insurance businesses to support growth. Alexander Scott asked if there are any other pieces of the portfolio that need additional optimization and Zaffino replied that they have mostly completed the major actions, but they are still focusing on the Personal Insurance and ultra-high net worth businesses.

AIG is focusing on Japan and Global Accident & Health as areas of investment to improve the portfolio and drive profitability. Peter Zaffino states that they have done an incredible job improving the loss ratio, but the expense ratio is still an outlier and needs to be addressed in the future operating model.

Peter Zaffino thanked everyone for joining the conference and concluded the program. He then highlighted the focus of AIG on improving the loss ratio and combined ratio in Personal Insurance, as well as their focus on reducing expenses to improve Return on Capital Employed. Michael Zaremski concluded the discussion.

This summary was generated with AI and may contain some inaccuracies.