The operator introduces Quentin McMillan as the speaker for AIG's Fourth Quarter 2023 Financial Results Conference Call. McMillan mentions that the remarks may include forward-looking statements and non-GAAP financial measures. He also states that the results will include AIG's Life & Retirement segment and other operations on the same basis as prior quarters until the deconsolidation of Corebridge Financial. He notes that Corebridge Financial will host its own earnings call. McMillan concludes by mentioning that the net premiums written in general insurance will be presented on a comparable basis, adjusted for certain factors.

In the second paragraph, Peter Zaffino, AIG's chairman and CEO, discusses the company's strong fourth quarter and full year financial results. He highlights the achievements of the company throughout 2023, including underwriting excellence, portfolio repositioning, and disciplined premium growth. Zaffino also mentions the successful execution of AIG's balanced capital management strategy, resulting in a 29% increase in adjusted after-tax income per diluted common share for the fourth quarter and a 33% increase for the full year. He concludes by stating that 2023 was an extraordinary year for AIG.

The speaker will cover several topics in their remarks, including an overview of the fourth quarter financial results, AIG's accomplishments in 2023, insights on the January 1 reinsurance market, and plans for the company's future. They will also discuss the strong performance of AIG's general insurance division, with underwriting income of $642 million and a 4% increase in gross premiums written. The speaker will also highlight growth in both global commercial and global personal segments, with a strong renewal retention rate of 86% in the enforced portfolio.

In the fourth quarter, North America and international commercial produced new business of $503 million and $467 million, respectively. This represents a 21% and 14% increase from the previous year. Rate increases were seen in both North America and international commercial, with North America experiencing a 4% overall rate increase and international seeing a 3% increase. In personal insurance, net premiums written increased by 9%, with North America seeing a 37% increase driven by high net worth business. The full year showed significant strategic repositioning and was considered the company's best year yet.

In 2023, AIG underwent a repositioning that involved selling Validus RE and Crop Risk Services, receiving proceeds of $3.5 billion. They also settled a $1 billion intercompany loan and received RenaissanceRe common stock. This reduced volatility and allowed them to focus on businesses with better risk-adjusted returns. AIG also made progress towards separating from Corebridge and completed three secondary offerings, generating $2.9 billion in cash. They returned $4 billion of capital to shareholders through share repurchases and dividends, reducing their common shares outstanding and increasing quarterly dividends. AIG also reduced their net debt by $1.4 billion through a senior notes tender offer.

In 2023, the company had strong parent liquidity of $7.6 billion, allowing them to continue with their capital management priorities. The general insurance division had a successful year with a 15% increase in underwriting income and improvements in combined ratios. Net premiums written also grew by 7%, with strong performance from Lexington and Global Specialty. Investments were made to accelerate growth and maintain underwriting profitability in these businesses.

In the global specialty business, net premiums written grew by 10% due to high retention, new business, and rate increases. The growth would have been 13% if two programs with significant property catastrophe exposure had not been non-renewed. Excluding these programs and financial lines, the net premiums written growth would have been 13%. In financial lines, underwriting discipline was maintained, leading to a compound annual growth rate of 49% from 2019 to 2023, and 63% if 2023 is excluded.

The company is closely monitoring market conditions and underwriting conservatively for their reinsurance business. They typically purchase reinsurance on January 1st to optimize outcomes and have clarity on costs. Evaluating risk-adjusted pricing changes can be complex, and the company follows industry best practices to determine these changes. This involves comparing the previous year's structure and coverage, analyzing cost of capital and any changes in model outputs, and assessing changes in coverage provided in the reinsurance placement.

The article discusses the changes in insurance coverage and the impact on calculating risk-adjusted rate changes. It also mentions AIG's successful reinsurance renewals at the beginning of the year, despite record-setting natural catastrophe losses in 2023. AIG was able to improve their property CAT structure and reduce overall spending, with a decrease in seated premiums compared to the previous year.

The company's property catastrophe placements remained unchanged for the second year in a row, with a $500 million retention for core commercial North America and a $300 million attachment on the Lexington occurrence tower. The retention in Japan was reduced to $150 million, and the rest of the world attachment remained at $125 million. The company was able to achieve broader coverage across all occurrence towers and improved their model probability of attaching CAT reinsurance. The property CAT aggregate cover was renewed with improved coverage and now includes a sublimit for losses in North America from secondary perils. The company also improved or maintained ceding commission levels for major proportional treaties.

In the casualty insurance market, reinsurers are facing challenges due to inflation and litigation funding in the U.S. However, AIG remains focused on maintaining underwriting standards and repositioning their portfolio. The industry has seen both reserve releases and reserve strengthening in the past 10 years, with AIG reporting initial loss picks of 78% for accident years 2016-2019. AIG has significantly strengthened their reserves for these years, resulting in year-end ultimate loss picks of 91% for 2016 and 96% for 2017. Compared to industry results, AIG's initial and year-end ultimates for liability and commercial auto are 10-20 points higher.

The company has implemented reinsurance to mitigate gross results and has renewed their casualty reinsurance protections. They have also launched a new program called AIG Next to create a leaner and more efficient company post-deconsolidation. This program aims to drive global consistency, reduce complexity, and increase operational efficiency. The company expects to generate $500 million in annual savings and incur $500 million in one-time costs. They are also creating a leaner parent company with a target cost structure of 1% to 1.5% of net premiums earned.

In 2023, the company began work to eliminate some costs and move others into the business where the service is utilized. This has contributed to a $500 million savings and has improved the combined ratio and GOE ratio. The company has established a team to drive and govern the AIG Next program to achieve these savings. The company remains agile and is exploring options for its remaining ownership of Corebridge. The company expects to continue executing its capital management strategy and has made significant progress in reducing its debt since the end of 2021.

In 2024, AIG's primary focus will be on returning capital to shareholders through share repurchases and dividends. The company expects to continue at this pace for the first half of the year, subject to market conditions, and plans to achieve the low end of its target share count range. The AIG board has increased the dividend, reflecting confidence in the company's future earnings. The CEO is optimistic about AIG's growth opportunities, particularly in its Global Commercial business, which has been repositioned and is now one of the most respected portfolios in the industry. In personal insurance, AIG plans to make investments in its Japan, global A&H, and high-net-worth businesses. The paragraph also mentions an upcoming Corebridge deconsolidation and provides an illustrative pro forma.

The paragraph discusses the potential impact of deconsolidating Corebridge from AIG's financial statements. It explains that deconsolidation would result in Corebridge being reported as an investment with dividends included in net investment income. The fair value of Corebridge's assets and liabilities would need to be recognized, which could potentially increase AIG's book value per share but decrease its adjusted shareholders' equity. The example provided uses Corebridge's current stock price as a proxy for fair value, but the actual process is more complicated and dependent on interest rates.

The paragraph discusses the link between AIG's year-end pro forma estimate and the ROCE target, as well as fourth quarter results. It mentions that AIG's adjusted shareholders' equity was approximately $53 billion at the end of 2023, but with the pro forma fair value decrease, it would be about $49 billion. The paragraph also discusses the fourth quarter consolidated net investment income, which increased by 17% compared to the previous year. This was driven by higher new money reinvestment rates in both the general insurance and life and retirement businesses. The yield on general insurance fixed maturities and loans also increased to 3.8% in the quarter.

In the fourth quarter of 2023, L&R's portfolio yield increased to 5.0% from 4.4% in the same quarter of 2022. However, alternative investment returns were weak, with a negative return of 2.4% for the full year. General insurance underwriting results remained strong, with a combined ratio of 89.1% for the fourth quarter. Global Commercial Lines had a combined ratio of 85.4%, while Global Personal Insurance had a combined ratio of 98.8%. The acquisition of Validus RE had a positive impact on Global Commercial Lines' results.

The accident year combined ratio for the company was 101.8% in 2023, driven by the repositioning of the high net worth business. Fourth quarter underwriting income for GI was $642 million, with improved accident year results but lower favorable prior year development. Catastrophe losses totaled $126 million, with Hurricane Otis in Mexico being the largest event. Excluding Validus RE, catastrophe losses would have been $111 million and $937 million for the quarter and year, respectively. Favorable prior year development totaled $69 million in the fourth quarter. L&R had solid fourth quarter results, with APTI of $957 million, up 12% from the prior year. Base net investment spreads and individual group retirement grew by 23 basis points in the quarter. Premiums and deposits were $10.6 billion, a 20% increase from the previous year.

Corebridge's fourth quarter earnings decreased by 25% due to a reduction in AIG ownership. However, for the full year, earnings only declined by 20%. Other operations also improved in the fourth quarter, with a $52 million reduction in AIG general operating expenses. AIG's fourth quarter adjusted after-tax income increased by 21% and their annualized adjusted return on common equity was 9.4%. The balance sheet also showed positive growth, with book value per common share increasing by 18% and adjusted book value per share increasing by 1%. AIG's debt and preferred stock to total capital decreased by 1.3 points. They are on track to achieve their goal of a 10% or greater return on capital employed, driven by various factors including AIG Next.

Peter Zaffino, CEO of AIG, discussed the company's recent performance and plans for the future. He mentioned that expenses were slightly higher than expected due to additional costs in the business, such as cyber and cloud usage. There was also some noise in the quarter, including one-time adjustments and profit sharing in personal insurance. However, Zaffino is not concerned about the uptick in expenses and believes the business has built capacity to invest in the future. He also noted that Validus, a property-centric company, will no longer be a factor in the numbers next quarter.

Peter Zaffino discusses non-renewing some property throughout the year and the pricing of Financial Lines. He believes the accident year loss ratio will remain consistent in 2024, with some potential changes due to business mix. He also mentions that the remediation is mostly complete and there are good opportunities for growth in commercial. Meyer Shields asks a question about pricing assumptions for casualty and if they match the loss trends embedded in the reserves.

The paragraph discusses the reserves for North American casualty lines and the increase in premium rates. The company has taken a proactive approach to reacting to negative trends and increased reserves in 2017. The underlying assumption for casualty loss trend is 10%. The company completed reserves in the third quarter without any significant changes. The rates for casualty lines, particularly in excess, have started to accelerate into double digits. Despite improved profitability and higher interest rates, the company has maintained the same level of proportional sessions for North American casualty lines. The company's thinking behind this decision is not explicitly stated.

The speaker discusses the evolution of their casualty placements over time, starting from a 50% quota share on primary casualty in 2016 and 2017, to a 20% quota share today. They have also improved ceding commissions by over 800 basis points. The balance between excess of loss and quota share partnerships with reinsurers is important, and they feel comfortable with the current amount ceded off for their overall casualty portfolio. The speaker also mentions a pro forma adjusted equity of $33 billion and potential parent liquidity on top of that once deconsolidation is complete.

During the earnings call, Peter Zaffino and Sabra Purtill discuss the company's pro forma shareholders' equity and liquidity position. They caution against using too many variables due to the assumptions made in the pro forma. Sabra explains the company's framework for liquidity and mentions their goal of reducing parent expenses. Elyse Greenspan asks about premium growth, and Peter responds that there are many factors at play but the company has a baseline without Validus and Crop Risk Services.

The speaker discusses the company's commercial portfolio and highlights their strong performance in new business growth and retention. They expect the growth rate to continue, particularly in their core businesses. There is also potential for growth in excess and surplus lines, as submission counts have significantly increased in casualty and healthcare. The speaker remains cautious but optimistic about achieving a high single-digit growth rate in the future. They mention opportunities for growth in reinsurance, global specialty, and personal insurance.

Michael Ward asks about the top line growth in international markets, specifically regarding the rate being slightly below loss cost. Peter Zaffino explains that the rate is based on gross premium written and is affected by the heavy weighting of specialty business in the fourth quarter. He also mentions that there were strong rate increases in property and marine, but the overall rate was at or slightly below loss cost trend. He adds that the adverse PYD in Russia and Ukraine is related to aviation and is for accident year 2022.

The paragraph discusses the adverse development in 2019 and the reasons behind it. They also mention the favorable development in prior years and the adverse development in the 2022 accident year. The question of share count and potential use of capital from Corebridge is also brought up.

The company plans to focus on share repurchase and dividend payment in the first six months, with the possibility of another sell down by the end of the second quarter. They hope to reach the lower end of their capital management range by the end of the year and will provide additional guidance afterwards. The Financial Lines business has been a challenge, but the company is trading in the current market and has been prudent with underpriced business.

The speaker discusses their company's primary business and how it has held up well. They also mention other products in their portfolio that have performed well and anticipate them to continue doing so in the future. The speaker mentions a potential market shift in 2023 and how it may affect the industry, but overall they are optimistic about the business and its pricing. They also mention the impact of the economy on new business opportunities. The speaker thanks their colleagues for their efforts and concludes the call.

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