American International Group, Inc. — 2023 Q4
Transcript
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Good day, and welcome to AIG's Fourth Quarter 2023 Financial Results Conference Call. This conference is being recorded.
Thanks very much, and good morning. Today's remarks may include forward-looking statements, which are subject to risks and uncertainties. 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 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, circumstances or management's estimates or opinions should change.
Good morning, and thank you for joining us today to review our fourth quarter and full year 2023 financial results. Following my remarks, Sabra will provide more detail on the quarter and some perspective on the year, and then we'll take questions. Kevin Hogan and David McElroy will join us for the Q&A portion of the call.
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Thank you, Peter. This morning, I will provide more detail on AIG's fourth quarter results. But first, as we are getting closer to Corebridge deconsolidation, I would like to start with an illustrative pro forma.
Thank you, Sabra. Michelle, we're ready for questions.
[Operator Instructions] Our first question comes from Michael Zaremski with BMO Capital Markets.
Maybe first on the expense ratio. I appreciate the color, Peter, you gave us on the continued improvement. Anything -- looks like this quarter, specifically, though, it took -- it was a bit higher than expected. Anything we should be thinking about? Or I don't know, if it's profit share, given the excellent loss ratio or just anything, any noise in there or seasonality?
Thanks, Mike. We outlined in my script that the business has been taking a lot of additional costs. Think about cyber and usage on the cloud. And so that might have been held centrally in the past. That has now been put into the business. And so you see that they're absorbing most of it, but there is some timing on that.
Okay. Great. And then my final follow-up is on the -- specifically on the accident year loss ratio. You've -- the Validus is property-centric, and it's going to be kind of fully out of the numbers next quarter. You talked about nonrenewing some property throughout the year.
I don't think so. I think the accident year loss ratio that we finished the year is what I would expect in 2024. Like you said, there's always a mix of business changes. There's always a little bit of noise. There could be some shift in composition. As you mentioned, property, we think we have tremendous opportunities there based on having 5 or 6 entry points across the world in terms of getting the best risk-adjusted returns.
Our next question comes from Meyer Shields with KBW.
Great. One quick question just to make sure I understand it. So you talked about pricing assumptions for casualty, assuming loss trends of either high single digits or low teens. Did that match the loss trends embedded in the reserves?
Sabra, do you want to talk about the reserves commensurate to the increase in premium and then -- sorry, an increase in rate change, particularly on excess?
Yes. So when we've -- and we've talked about it in the past, we've taken a proactive approach to try and to react quickly to bad news that we see in trends. And as you know, even back in 2017, we moved to increase the reserves on casualty lines.
So another observation, Meyer, on that is that the rates as we got to the back half of the year in Casualty, particularly in Excess Casualty, started to accelerate into double digits. And also not that this is a bellwether because there's different mix of business, but our casualty submissions in Lexington in the fourth quarter were up 100%, which just means it's getting harder to get casualty placements done in the admitted market. Pricing is going up driven by rate, terms of conditions are being tightened and there's more activity in E&S.
Okay. Fantastic. That's very helpful. Second question, I guess, maybe jumping off from that. I guess I'm a little surprised that there's still, if I understand correctly, the same level of proportional sessions on North American casualty despite the fact that overall profitability has gotten so much better and higher interest rates. And I was hoping you could take us through your thinking on that.
Sure. Look, our casualty placements have evolved over time to reflect the portfolio, the gross limit deployment. And if I could take you back to even 2016 and '17 where we had quota shares before we arrived where we had a 50% quota share on Primary Casualty and then we had a 37.5% placement on Excess Casualty. That's just continued to evolve as we got into 2018, where we bought a large excess of loss placements for our worldwide Casualty portfolio for 75 ex of 25.
Our next question comes from Elyse Greenspan with Wells Fargo.
My first question was on the equity that you laid out, Sabra. So $33 billion pro forma adjusted equity. And then I believe you said parent liquidity would come on top of that. So can you just give us a sense of once you're through deconsolidation, what type of liquidity you would like to have in parent? Because I'm assuming it would be $33 billion plus the parent liquidity would be the equity that we should consider in reference to the double-digit plus ROCE target.
Thanks, Elyse. I'll turn it over to Sabra in 2 seconds. But I just want to caution us that we tried to outline what we expect shareholders' equity with a variety of different variables, but it was all pro forma.
Yes, certainly. Look, we have a framework around our liquidity position. And clearly, given the timing of the Corebridge secondaries and the Validus sale in the fourth quarter, parent liquidity was at very attractive and high levels at year-end.
And then my second question, appreciate all the color on the call on premium growth, right, I think it was around 9% in the quarter kind of ex Validus and Crop. And so as we think about the moving pieces and just your view of price, loss trend, et cetera, would you expect top line growth kind of on an adjusted basis to be within that range in '24? Are there other things that we should consider?
Well, when you take out -- again, there's a lot of moving pieces, but like you take out Validus, Crop Risk Services, and so we have a baseline. And then when we look at our commercial portfolio -- I look at the fundamentals, Elyse, in terms of how are we growing the business. And we gave you highlights in the fourth quarter about our new business, which was simply terrific, and that momentum continues. Our retentions have been fantastic. And so again, it's a portfolio that we have done such a great job to get to a place where we really like and find opportunities for stability and more growth.
Our next question comes from Mike Ward with Citi.
Maybe kind of a similar question, but specifically on International. I think rate is a little below loss cost. So I was just wondering if you have any commentary on how you see the top line growth there playing out.
Mike, thanks for the question. If I look at International on the rate side, just a reminder that we do rate on gross premium written, not net. And so like as you take that from the portfolio, there's a heavy weighting our Specialty business in the fourth quarter. And the Specialty business does have a lot of quota shares and has a terrific reinsurance partnership. But it's almost 50% of the business, roughly between 40 to 50 in the quarter.
And then maybe just on the adverse PYD in Russia, Ukraine. Just is that related to aviation? And is that just accident year '22? Because I think there was some adverse in other -- '20 and '19.
Sabra, do you want to provide a little bit of update in terms of how we got to the adverse?
Sure. And I'll just start by overall. As I mentioned, we did have some favorable prior year development from older catastrophe years. So those were basically in years 2018 through 2020.
Our next question comes from Brian Meredith with UBS.
First question, I'm just curious, as we look at this, you're getting close to the 600 million kind of share count. As we think about that and the use of proceeds from Corebridge, are you willing to go kind of meaningfully below that? And if not, what is the other kind of potential uses of capital here that you're thinking about to mitigate dilution from selling down your remaining interest in Corebridge?
Thank you, Brian. It's a good question. It's a little leading, but we had outlined the capital management strategy for the first 6 months, and that gets us below the [ 650 million ] share count at a base assumption of a stock price around where we are now. And so there's a few variables that could accelerate that or slow it down depending on market conditions and share price. But we know we have the liquidity, and we just wanted to outline what we thought we would do within the first 6 months.
Great. That's helpful. And then, Peter, I just want to chat briefly on the Financial Lines business. And it seems like everybody is cutting Financial Lines. I'm just kind of wondering like who is actually running the business? And do we think we're getting closer to a bottom here? And do you think that's still a significant headwind to 2024 premium growth?
Thank you, Brian, for the question. And I've been trying to find a way to bring in McElroy to close it out. So Dave, why don't you give Brian some insight, and then we'll send it back to me, and we'll finish up.
Thank you, Brian, and thank you, Peter. The -- yes, honestly, Brian, you see the weighting of the Financial Lines in our portfolio. It's a bit of an outside influence. But we've also gone through the year, and I think we trade the market we're in, not the market we hope for.
Thanks, Dave. Thank you very much, and thanks, Brian. Thank you, everyone, for coming to the earnings call today and greatly appreciate the engagement. And I want to thank all of our colleagues around the world for all they've done to progress the strategic progress that we've made and just have delivered tremendous results. So everybody, have a great day, and thank you.
Thank you for participating in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a great day.