Quentin McMillan is leading AIG's Second Quarter 2024 Financial Results Conference Call. The conference will include forward-looking statements and may refer to non-GAAP financial measures. The historical results of Corebridge Financial will be reflected as discontinued operations. The General Insurance results will be presented on a comparable basis to provide the most useful view of the business.

In the second quarter of 2024, AIG reported strong financial results, with adjusted after tax income of $775 million and a 38% increase in earnings per share. The company's General Insurance net premiums written grew by 7%, and underwriting income improved by $110 million. The calendar year combined ratio was 92.5%, while the accident year combined ratio, excluding catastrophes, improved by 170 basis points to 87.6%. A detailed breakdown of the company's performance can be found on pages 29-31 of the earnings presentation. CEO Peter Zaffino highlighted the company's transformation and expressed excitement for the next chapter.

The CAT loss ratio for the quarter was 5.7%, with $325 million in catastrophe related losses. Net investment income increased by 14% year-over-year and $2 billion was returned to shareholders through stock repurchases and dividends. The company has a strong financial performance and is making progress on strategic initiatives. The call will cover financial results, recent transactions, reinsurance renewals, capital management, and AIG Next. The deconsolidation of Corebridge is a major milestone and the decision was based on a four year journey and significant accomplishments.

In 2020, AIG announced its intention to separate its life and retirement business, Corebridge, from the company. This was followed by several noteworthy accomplishments, such as Blackstone Group becoming an anchor investor and BlackRock managing a portion of Corebridge's assets. In 2022, Corebridge had a successful IPO and AIG continued to reduce its ownership through various deals. In 2024, Nippon Life Insurance Company purchased a 20% stake in Corebridge, and AIG announced the deconsolidation of the company for accounting purposes.

During the quarter, AIG announced the sale of its global individual personal travel insurance and assistance business as part of its efforts to simplify its portfolio. The sale is expected to close by the end of 2024 and AIG will continue to provide corporate group travel coverage. AIG also announced a strategic partnership with Ryan Specialty for its high net worth business, which has been transformed over the years through strategic actions and significant investments. AIG remains committed to its high net worth business and believes it is well-positioned for the future.

AIG is committed to delivering solutions and growing their admitted capabilities through establishing an MGU and expanding partnerships. In the second quarter, gross premiums written increased by 7%, with net premiums written growing by 7% as well. Global Commercial had a strong quarter with 8% net premiums written growth, driven by new business and improved accident year combined ratio. In North America Commercial, net premiums written grew by 10%, with significant growth in Lexington, Retail Casualty, and Captive Solutions. In International Commercial, net premiums written grew by 6%, with strong growth in Global Specialty, Talbot, and retail property. In the second quarter, Global Commercial achieved record new business of almost $1.3 billion, an 18% increase from the previous year.

In the second quarter, North America Commercial saw a 26% increase in new business, with Lexington leading the way with a 31% year-over-year growth and over $1 billion in gross premiums written. Retail casualty also saw significant growth of over 40%. International Commercial also had a strong quarter with a 9% increase in new business, led by Global Specialty, Casualty, and Property. Global Personal Insurance saw a 5% increase in net premiums written, driven by growth in high net worth and personal auto and accident health. The combined ratio for General Insurance improved by 170 basis points, with the expense ratio improving by 140 basis points. In Global Commercial, the accident year combined ratio also improved by 180 basis points.

The combined ratios for North America Commercial, International Commercial, and Global Personal have all improved, with North America Personal seeing the largest improvement. The company was able to execute their strategic reinsurance goals for the second quarter, with risk adjusted rate decreases and lower retentions. The outlook for the rest of the year is uncertain due to predicted above average hurricane activity, and it's important to consider both the rated and alternative capital markets when analyzing capacity.

The article discusses the trend of insurance companies moving attachment points higher and restricting coverage to name perils. The complementary alternative capital market has a large amount of estimated capital, but it is important to consider the composition of this capital. The CAT bond and ILW markets make up 50% of the alternative capital market, and the collateralized market is back to 2016 levels. AIG remains disciplined and maintains its aggregate cover at the same attachment point, which protects them from potential frequency of CAT events. The company has structured its treaties to have lower attachment points with less volatility.

AIG has maintained or reduced its occurrence attachment points globally, making it the lowest among its peers. They have a remaining aggregate cover of $95 million for international events and $270 million for North America, which falls within their risk appetite. AIG has made significant progress in their capital management strategy, deploying over $30 billion in cash in the last three years. They have reduced their share count by 25% and expect to further reduce it in the future through share repurchases and the Nippon Life transaction.

In the next four years, AIG plans to reduce their share count and repurchase $10 billion of shares, while also increasing dividends and reducing debt. They are in a strong capital position and have been working to simplify their company and invest in technology and talent. Over the past five years, they have invested over $1 billion in technology, process workflow, and data.

In 2024, AIG launched AIG Next to improve operational efficiencies. This program includes redefining retained parent costs and aims to decrease them to $325 million to $350 million, or 1% to 1.5% of net premiums earned. Expenses not related to being a global regulated public company will be embedded in General Insurance results or eliminated. AIG expects to achieve a lower combined ratio in 2025 due to these actions. They are also utilizing artificial intelligence and data strategies to increase underwriting efficiency and streamline processes.

The primary goal is to create an AI-powered underwriting portfolio optimization capability that will improve underwriting productivity and decision-making. This will be achieved through the automation of manual processes and the use of advanced modeling and data sources. The focus is on both underwriting efficiency and management, with a multi-vendor technology strategy in place for flexibility and adaptability. The platform is designed to support the expansion of generative AI capabilities while keeping the underwriter at the center of decision-making.

AIG has been utilizing generative AI and large language models as part of their data and digital strategy, and will continue to do so in the future. The company has had a successful second quarter and has made significant progress in preparing for a bright future. Sabra Purtill then provides details on AIG's financial results for the quarter, with a focus on the accounting treatment of Corebridge deconsolidation, General Insurance results, premium rate trends, other operations, book value per share, and ROE. She explains the key dates and actions that triggered deconsolidation accounting and resulted in significant changes in AIG's financials. Additional slides have been added to the investor deck to further explain these changes.

On Slide 15, the impact of held for sale and discontinued operations is discussed. This requires a recasting of financials for the current reporting period and past periods. Corebridge, a core business that AIG intends to exit, met the criteria for both held for sale and discontinued operations. This resulted in a reclassification of assets, liabilities, and net income for Corebridge. While AIG's total assets remained the same, there were significant changes within the line items, such as a decrease in total investments in cash due to including Corebridge's investments in the assets of discontinued operations. On June 9, deconsolidation was triggered, and the first step in this process was fair valuing Corebridge's assets and liabilities, which amounted to $9.7 billion. This included the market value of Corebridge shares and the net fair value of intercompany assets and previously consolidated investment entities.

In this paragraph, the net gain on the sale of Corebridge is calculated to be $3.0 billion pre-tax or $2.5 billion after tax. This is followed by the recognition of a $7.2 billion loss from accumulated other comprehensive income on AIG's balance sheet. This results in a net after-tax loss on deconsolidation of $4.7 billion, which is added to Corebridge's net income for the quarter prior to June 9 to calculate a total net loss on discontinued operations of $4.4 billion. This has a negative impact on AIG's shareholders' equity, resulting in a decrease of $1.5 billion in the second quarter. However, this decrease is offset by income from continuing operations, share repurchases, and dividends paid, resulting in a pro forma AIG shareholders' equity of $41.9 billion before deconsolidation.

The paragraph discusses the impact of deconsolidation on AIG's shareholders' equity, debt, and leverage, as well as the second quarter results for General Insurance. The adjusted pre-tax income for General Insurance increased by 7% due to strong underwriting results and higher net investment income. Net investment income for General Insurance also increased by 10%, primarily due to higher reinvestment rates. The expected third quarter investment income for General Insurance is around $700 million.

In the second quarter of 2024, AIG saw an increase in income from alternative and other investment assets compared to the same quarter in 2023. Underwriting income also increased, driven by lower expenses but offset by higher catastrophe losses. The accident year loss ratio, excluding catastrophes, has been strong and is expected to remain at the same level in the second half of 2024. The industry as a whole has experienced elevated losses from natural catastrophes, with AIG's second quarter losses totaling $325 million. AIG expects to see similar losses for the full year, but their underwriting standards, limits, and reinsurance programs will help mitigate the impact. The third quarter is typically the highest catastrophe quarter for the industry.

The company saw favorable development in reserves due to completed DVRs on a significant amount of reserves. However, there was a modest unfavorable development on excess casualty reserves for 2021, mainly due to a few large known losses and commercial auto trends. Overall, severity trends remain consistent with assumptions. Pricing increased by 5% for Global Commercial Lines, and renewal rates increased by 2% in North America and remained flat in International Commercial. The company continues to closely monitor its portfolio and has seen rate increases in certain lines of business, such as property. In North America, retail and wholesale property saw a decrease in rate increases in the second quarter, but there have been significant rate increases since 2018.

In 2023, international property prices have increased by 100%. AIG's property portfolio had a strong combined ratio and they continue to focus on writing business that has attractive returns. The deconsolidation of Corebridge has simplified AIG's income statement and balance sheet, resulting in a 43% improvement in adjusted pre-tax loss. AIG has also revised their non-GAAP equity metrics, including adjusted book value and core operating shareholders' equity. Adjusted book value per share is $72.78 and core operating shareholders' equity reflects the equity invested in AIG's go-forward business.

The paragraph discusses AIG's updated metric for valuing their global general insurance business and their progress towards a 10% plus ROE target. They achieved the deconsolidation of Corebridge and had strong profitability and growth in their General Insurance business. They are focused on achieving their ROE target through underwriting, top line growth, expense reduction, and capital management. The speaker then turns the call over to Peter for questions. The first question is about the updated combined ratio trajectory guidance for 2025 and what it implies for the loss ratio. The speaker clarifies that they will be able to hit their target sooner and addresses concerns about potential loss ratio slippage due to lower levels of reserve releases.

The company's guidance for the full year 2025 does not include any improvement in the loss ratio, as all focus is on reducing expenses. The current pricing environment is still accretive to ROE, but the company is not expecting any further improvement in loss ratios to meet their guidance. The property market has seen significant rate increases over the past few years, but this quarter it was flat. However, the overall trend has been above loss cost trends.

The speaker discusses the impact of low activity in CAT during the first quarter and the cumulative rate increases over time. They mention that the property combined ratio, even with some giveback in the second quarter, is still outstanding. They express confidence in the portfolio's profitability, but note the unpredictability of the CAT market and underlying inflation. The speaker also mentions the sale of travel insurance and its minimal impact on the combined ratio. They then hand over the discussion to Sabra, who talks about favorable development on the excess casualty line, particularly for older years. She also mentions that 45% of the total book was reviewed in the second quarter.

In the paragraph, the speaker discusses the detailed analysis of reserves for U.S. casualty in the current quarter. They evaluated $20.2 billion of reserves, consisting of 23 separate DVRs and over 200 different lines of business. The net changes in the quarter were only $20 million, with $80 million favorable in workers' comp, $22 million unfavorable in excess casualty, and $17 million favorable in casualty. They also made adjustments for the 2021 accident year due to known early reported claims and increased loss cost trends. In addition, they had $33 million of favorable development in excess casualty from previous accident years, offsetting the $66 million of adverse development in the 2021 accident year.

During a conference call, a question was asked about the projected combined ratio for the full year 2025. The speaker clarified that the comparable basis would be excluding Crop and Validus. The projected figure for 2023 is 91.6%. The speaker also mentioned that they are exploring inorganic opportunities due to the financial and strategic flexibility they have created through recent divestitures. They will be selective and disciplined in considering potential opportunities, with a focus on businesses where they have competitive advantages and complementary geographies.

The speaker discusses the company's plans for expansion in certain geographies that will benefit their multinational network. They will use specific criteria to evaluate potential investments and will provide updates as more information becomes available. In regards to the accident year loss ratio, the improvement seen in the first half was largely due to the Personal Insurance sector, specifically in North America. The speaker expects to see similar improvements in the back half of the year due to new business and momentum within the company.

The mix of business at AIG is expected to change in the back half of the year, leading to an improved loss ratio in the first six months. This change is due to a combination of factors, including the strong performance of North America personal and the decision to focus more on high net worth business. AIG has recognized the need to shed excess exposure in certain geographies and is building out an admitted platform while also partnering with Ryan Specialty to expand into the non-admitted market. This move is driven by the need to have flexibility and better respond to client needs in the highly fragmented wholesale market.

The speaker discusses the company's plans to access the non-admitted property market through a recent partnership and how this aligns with their overall strategy for growth. They mention their focus on retaining and acquiring new business, particularly in North America, and highlight the strength of their underwriting discipline and profitability. The speaker is confident that these efforts will position the company for future growth.

The company has been deliberate in its growth strategy, focusing on creating value for distribution partners and clients and pursuing targeted risks. This has resulted in high levels of retention and growth in specific market opportunities, such as retail casualty and Lexington. The growth in Lexington comes from strong retention, new products, and new customers. The company has also resourced for this growth in advance. In the International segment, the company has a large and diverse portfolio that allows them to take advantage of opportunities in different markets.

The speaker discusses the company's strategic growth plan and highlights the success of their global specialty business and Talbot at Lloyd's. He also thanks his colleagues for their hard work and acknowledges the retirement of a colleague and their contributions to the company.

Tom played a key role in creating a worldwide system for AIG's underwriting standards, governance, and structures, in line with their updated risk tolerance. He has been an exceptional executive at AIG. The speaker thanks everyone for participating and ends the call.

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