American International Group, Inc. — 2023 Q3
Transcript
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Good day, and welcome to AIG's Third Quarter 2023 Financial Results Conference Call. This conference is being recorded.
Thanks very much, and good morning.
Good morning, and thank you for joining us today to review our third quarter financial results. Following my remarks, Sabra will provide more detail on the quarter and then we will take questions. Kevin Hogan and David McElroy will join us for the Q&A portion of the call.
first, AIG's financial results, including Life and Retirement, and provide an update on recent divestitures; second, I will provide the results of AIG's General Insurance business; third, I will provide an update on the casualty insurance market more broadly and AIG's approach to our casualty portfolio; fourth, I will provide an update on our capital management strategy and the progress we have made this quarter. Sabra will provide more detail on AIG's balance sheet and capital position in her remarks. And lastly, I will reconfirm our guidance with respect to our path to a 10%-plus ROCE post deconsolidation of Corebridge.
adjusted after-tax income was $1.2 billion or $1.61 per diluted common share, representing a 92% increase year-over-year. Consolidated net investment income on an adjusted pretax income basis was $3.3 billion, a 29% increase year-over-year. In General Insurance, net investment income was $756 million, a 30% increase.
Thank you, Peter. This morning, I will provide more detail on AIG's third quarter, including General Insurance reserves, net investment income, Life and Retirement results and balance sheet and capital management.
Thanks, Sabra. And Michelle, we're ready for questions.
[Operator Instructions] Our first question comes from Meyer Shields with KBW.
One question to start on reserves. I guess, what's the process for ensuring that the adverse development in International Commercial doesn't actually reflect social inflation problem and that it's individual cases?
Meyer, thanks for the question. Sabra, do you want to cover? That's just a quick overview of -- Meyer mentioned the International and some of the inflation impact from reserves.
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. But each quarter, we do an actual versus expected analysis. So we do make adjustments to reserves 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.
Thanks, Sabra. Meyer, do you have another question?
Yes, just a quick one. I know there's a lot of moving parts in North America Personal. I was hoping you could give us some sense of maybe true underlying underwriting results and the path to profitability in that segment.
Great. Thank you. As we've talked about before, it's a business in transition. We're not pleased with the overall printed results. But we had outlined in the past that it's complicated. 2023 would be a transition year, particularly with PCS, 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 as we fully earn in the premium over the coming quarters.
Our next question comes from Gary Ransom with Dowling & Partners.
I wanted to ask about Financial Lines. On the one hand, you noted that rates are going down in that segment. And on the other hand, you were talking about social inflation. And I mean, just generally, it seems to be as worrisome as ever. 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 color on how you're managing through that portion of the cycle in that business.
Sure. Yes, thanks, Gary, for the question. And 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 and not only with the underwriting, but also with cumulative rate. And so we still think there's margins, still think our scale and balance across the world is a competitive advantage. And when we talk about some of the challenges in Financial Lines, it's really specific to North America.
Yes. Yes, thank you, Peter. And thank you, Gary. The -- 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 with where we have positioned the book, okay?
Thank you, David. Very thorough. Appreciate it. Gary...
Yes, that's a very thorough answer. I'm good. I mean I'm good with that.
Our next question comes from Alex Scott with Goldman Sachs.
First one I had for you is on sort of capital management related to Corebridge separation. I appreciate 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. I did want to probe you a bit on to what degree, if at all, that, that considers further kind sell-down at Corebridge and sort of further special dividends coming out of Corebridge and so forth.
Yes, thanks very much for the question. I mean we tried to provide between Sabra's script and in my prepared remarks a lot of detail on capital management and also the additional liquidity where we're going to have from the special dividend from the Validus Re disposition and overall how we intend to use those proceeds. And it remains the same is we want to make sure that we provide ample capital in our subsidiaries to continue to drive growth. 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 profit growth and more margin, and that is our primary focus.
Yes, that's helpful. Second question I had is on the, I guess, the operating company level on the RemainCo General Insurance side of things. Where do you see those metrics over time? I mean one of the things that I've looked at is just decomposing 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.
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.
Our next question comes from Michael Zaremski with BMO.
My question is kind of on some points that were touched on already on the portfolio transformation strategy, which has obviously been successful over the past 5 years. So Peter, you used the T word, trillion, you said $1.4 trillion limit reduction. So just curious, I think David gave us a flavor of this answer, but does that -- is there a way to frame what percentage limit reduction your average -- this average policy is? It sounded like David said it's over 50% in some of those Financial Lines?
Yes. I think you recognize how we were able to reduce volatility. When you have -- I have to even pause when I have to write out trillion because it's a big number. And $1.4 trillion of limit, I don't think that's been done in our business before, and then reposition the portfolio to drive significant profitability improvement.
Okay. Great. And my last, if I may, is on -- there's a lot of leadership changes over the past, right, years and quarters. I think Sabra used the term simplify structure. I guess any color you can offer on are we -- is the structure simplified, we're on baseball inning 4 or 9? Or any comments would be helpful.
Sure. Look, we've had a lot of change over the last 5 years. When I look at our overall attrition, it's at all-time low. We've had a couple of senior executives that we brought in to position the organization for 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've become accustomed to. 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.
Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.