Good day and welcome to the AIG’s Third Quarter 2018 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Liz Werner, Head of Investor Relations. Please go ahead, ma’am.

Thank you, April. Before we get started this morning, I’d like to remind you that today’s presentation may contain forward-looking statements, which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Any forward-looking statements are not guarantees of future performance or events. Actual performance and events may differ possibly materially from such forward-looking statements. Factors that could cause this include the factors described in our first, second and third quarter 2018 Form 10-Q and our 2017 Form 10-K under Management’s Discussion and Analysis of Financial Conditions and Results of Operations and under Risk Factors. AIG is not under any obligation and expressly disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Today’s presentation may contain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in the slides for today’s presentation and our financial supplement, both of which are available on our website. As a reminder, for this morning’s call, our Q&A session will have one question with one follow-up. Please get back into queue, if you would like to ask additional questions. On this morning’s call, you’ll hear from our senior management team including CEO, Brian Duperreault; CFO, Sid Sankaran; CEO of GI, Peter Zaffino; GI’s Chief Actuary, Mark Lyons; and CEO of L&R, Kevin Hogan. At this time, I’d like to turn the call over to Brian.

Thank you, Liz, and good morning, everyone. Our third quarter results reflected volatility due to 14 global catastrophes, particularly the Japan typhoons. We continue to execute on our reinsurance strategy, one of our key initiatives, which I will cover in a more detail and which Peter will also review in his remarks. Other actions we’re taking to improve our underwriting capabilities and profitability are taking hold, and we started to see some of the resulting benefits in our third quarter results. We continue to expect to deliver an underwriting profit including AAL for General Insurance as we exit 2018. Over the course of the last year, Peter and his team have made significant progress in executing on our reinsurance strategy. And this work will continue as we approach the January 1 renewal season. So far this year, we’ve lowered our North American CAT cover attachment point from a per occurrence of $1.5 billion to an aggregate of $750 million and added an additional international cover. As you will hear from Peter in his remarks, AIG’s national market share in Japan is 6%, and in the area most impacted, it’s 10% on the average. While our Japan reinsurance program was renewed in January 2018 maintaining its historical structure which included two separate towers for the commercial and personal insurance business, we have been working diligently throughout this year to get a single structure in place for 2019 to reduce our net exposure on both a frequency and severity basis. We are pleased with the contributions and balance that Validus brings to our business mix. The disciplined underwriting and risk approach that Validus takes was most evident this quarter in the estimated net CAT loss of approximately $200 million, which was in line with peers. Validus was neutral to our accident year…

Thank you, Brian, and good morning, everyone. This morning, I’ll comment on our third quarter financial results, our capital and liquidity position, and provide an update on Fortitude Re and Validus. Turning to slide four. We reported an adjusted after tax loss of $0.34 per share. Book value per share, excluding AOCI, was $66.83; and adjusted book value per share, which excludes AOCI and DTA, was $55.58 at quarter-end. Note that approximately $500 million of the reduction in book value is associated with an increase in the deferred gain on our adverse development cover, which will amortize back into earnings and book value over time. Overall, net investment income from our insurance operations including the Legacy insurance portfolios was $3.4 billion in the quarter or $9.9 billion year-to-date, which is in line with the $13 billion full-year guidance that we provided at the beginning of the year. We continue to make progress on our restructuring initiatives in the third quarter, most notably in General Insurance were general operating expenses declined 5% from the second quarter on an ex-Validus comparable basis. We continue to expect to achieve the full $450 million of annual run rate expense savings, I referenced last quarter, as we enter 2019. General Insurance, Life and Retirement, and Legacy results were all impacted by various noteworthy items listed on page five. We report $1.6 billion of pre-tax catastrophe losses driven by multiple events, most significantly, Typhoons Jebi & Trami in Japan. We remain comfortable with our initial pre-tax losses in its for Hurricane Michael, which are between $300 million and $500 million. And this estimate will be included in our fourth quarter 2018 operating results. Given these events place us close to attaching North American catastrophe aggregate program and that our third quarter severe losses attach on our…

Thank you, Sid, and good morning. Today, I will provide an update on General Insurance’s progress against our key 2018 priorities to improve underwriting performance and position the business for long-term success; the recently announced Glatfelter transaction, third quarter financial results and our observations of current market conditions. During the quarter, we continued to execute on our initiatives to strengthen General Insurance’s core performance and achieve underwriting profitability. I am pleased with the progress we’re making to implement fundamental changes to our underwriting strategy and guidelines. Under Tom Bolt, we have built a CUO structure to support our underwriters across the globe. We’ve recently welcomed Mike Price as Deputy Chief Underwriting Officer and have expanded the role of Lixin Zeng, CEO of AlphaCat, who will work closely with Tom to bring Validus’ best practice in model development AIG. As we have shared in the past, our underwriting strategy has prioritized the reduction of gross and net limits in property and casualty. We’ve reduced property’s gross limits from $2.5 billion to $750 million and its net limits from $611 million to $143 million. In a similar way, we’ve reduced casualty’s gross limits from $250 million to $100 million. With respect to underwriting governance, we’ve reviewed, validated and reissued 100% of global underwriting authorities to align with our revised risk appetite and instituted a new underwriter scorecard that measures performance against profitability and other key metrics. As we reposition our portfolio, we are using reinsurance to support sustained profitable growth, while prudently managing gross and net exposures and protecting AIG’s balance sheet. As a clear example, we’ve recently expanded our existing $75 million excess of $25 million international casualty excess of loss treaty into a global program that now includes exposures across U.S. primary and excess casually lines, which aligns the net…

Thank you, Peter, and good morning all. I’d like to make some comments this morning, firstly, about some general observations I have since joining AIG earlier this summer; secondly, I’d like to provide more focused comments on loss reserves for the quarter; thirdly, I’d like to provide some clarity around the reserving numbers themselves; and lastly, I’ll get my views about the underwriting portfolio changes that have been implemented so far to-date. Over the last four months, I’ve had the opportunity to meet with many AIG executives and P&L owners, understand their strategies, historical results, budgets, competitive positioning and portfolio composition. I’ve always operated under the assumption that an understanding of the underlying business strategy is critical towards evaluating reserves, profitability, portfolio mix and the like. Actuaries after all are charged with analyzing mountains of data and associated information to properly accomplish their job. It’s best for them to understand the market conditions that spawn the data being analyzed. I found here a talented group of professionals who are hardworking and care about the Company. They’ve employed a host of appropriate actuarial methods that are suitable for the task in hand. This group has helped me review, analyzing and conclude on 50% of the General Insurance loss reserves during the third quarter and also helped me review challenge and understand the analyses done earlier this year. Overall then, I’ve got my fingerprints on approximately 75% of the reserves through third quarter. As for the fourth quarter, when the remaining 25% of reserves will be reviewed, the areas of focus will be U.S. Financial Lines, workers’ compensation buffer access policies, international casualty reserves other than the UK and Europe which were reviewed this quarter, and personalized exposures. At this time, on a preliminary basis and before the detailed reviews are completed,…

Thank you, Mark, and good morning, everyone. As you can see on slide 15, Life & Retirement delivered solid results for the quarter. Excluding the adjustments from the annual assumption update that Sid discussed, adjusted pre-tax income of $811 million was in line with our expectations, along with an adjusted ROE of approximately 13%. We continue to deploy capital to attractive opportunities, leveraging our broad product portfolio and channel strategy. As market conditions improved, we increased premiums and deposits across our annuity lines, fixed, index and variable. We grew Life Insurance sales, especially in our International Life business and increased premiums and deposits in Group Retirement. Higher general operating expenses reflect this new business growth, as well as our investments to strengthen our platforms and enhance our digital capabilities. If market conditions continue to improve, we are well-positioned to deploy more capital at or above our targeted economic returns, while recognizing we will incur additional expenses associated with new business growth. Now, I will briefly discuss results for each of our businesses. Turning to Individual Retirement on slide 16. Premiums and deposits grew by over 40% with particularly strong growth in fixed and indexed annuities. With these strong sales levels, we achieved positive net flows for the quarter, excluding retail mutual funds. Retail mutual funds which is a comparatively small basis of our business, continued to face headwinds in the quarter and net flows may continue to be challenged for a period of time. Total assets under management and fee income for Individual Retirement remain strong. We continued our practice of active spread management, but as expected, we saw continued compression from our fixed annuity portfolio due to the rolloff of higher yielding assets that are being reinvested at rates below the overall portfolio yields. Base net investment spread for…

Thanks, Kevin. Let’s go to Q&A.

[Operator Instructions] And we’ll take our first question from Yaron Kinar from Goldman Sachs. Please go ahead.

Hi. Good morning, everybody. My first question is around the CAT losses. So, I guess, the one thing I’m still struggling with after the preannouncement and in the quarter is, just get a better feel of the AAL and maybe why CAT losses were at least year-to-date seem to be tracking well above the AAL. And I understand that Japan losses were very significant. But, at the end of the day, I would have thought that these are items or the exposures were known or the market weighting in Japan was known well into this year. So, maybe any additional color you can offer on your thoughts on AAL here, is the 4% to 4.5% is still a reasonable number to think about?

Yes, sure. Yaron, I think it is. But, I think Peter can give you a little bit more color.

Thanks, Brian. And thank you for the question. Let me just start with the CATs. We had said a $1.6 billion in the quarter. If you take out Legacy, Validus and then the $150 million in the year adjustments for mudslides, you are down to about $1.2 billion. And so, the Japan loss, again, it’s one of the worst CAT years in 25 years, is $750 million, Jebi being the worst. And so, on a current basis in terms of the return periods, it’s actually exactly where we had thought. And so, there is -- with AAL and reinsurance, it was at expectations. Now, they had more frequency in the quarter than we have seen in the past. And so therefore, taking a look at the AALs, and I’ll comment on that in a second, we also had about 440 in North America. So, when you look at those two and you look at the frequency that we had within the quarter on an aggregate basis, it’s within modeled expectations. So, Mark commented a little bit on what we are doing on property and gross limits. And the AALs, if you look over the last 10 years, have been around 100 basis points or thereabouts, lighter than our actual CAT experience. So, it’s within line. We are looking to revise total insured values, looking at PMLs and looking at different reinsurance structures. Brian said in his prepared comments that we’ll be relooking at Japan. So, we’ll have less frequency and severity as we enter 2019. And we’re running the models to recalibrate and take a look at the AALs, but they are very much in line with our expectations over a longer period of time.

And we’ll take our next question from Elyse Greenspan from Wells Fargo. Please go ahead.

So, my first question is just on the underwriting profitability target. Brian reaffirmed the goal for the end of the year. So, I just -- as you guys think about inflation, can you just kind of talk to that and what you have embedded in getting to that sub-100 target. And then, just a clarification there, because I know that that’s a year-end target. Is your expectation that General Insurance will plant a sub-100 underlying plus AAL in the first quarter of 2019?

Well, let me do the last piece first. Yes. That’s what I meant by entering into 2019. So, we expect the first quarter to be an underwriting profit. So, with respect to inflation, we’ve got Mark here. I think, Mark’s probably the best to answer that question.

Great, Brain. Thank you. And hello, Elyse. As respect to -- as Peter mentioned, we have 4% on the weighted average pricing increase. We view this that we are gaining. So, we are having a margin expansion. It varies by line of business, as you know. Averages can be deceiving. Our loss cost trends, which is a frequency severity combination, range from about zero in some lines to about north of 8 in other lines of business. Auto, for example, we see that as being fairly high at this point, around the 8% area; we’re getting materially more than that in rates, and that’s actually a margin expansion line. Most of our other lines, casualty, primary, excess, we’re feeling those are margin expansion lines as well, given the rate changes we’re getting. Where some of the challenge areas, where comp is a little more flat, we might be losing a little bit there. D&O overall is we think we’re getting -- it’s close to flat, but some areas are improving and some areas like EPLI, we could be marginally losing on.

And we’ll move on to our next question from Josh Shanker with Deutsche Bank. Please go ahead.

Can we talk a little bit about $148 million of California Wildfire losses a year later? That’s a lot of houses or a lot of businesses? What’s going on there?

Mark -- I think Mark wanted to answer this question. This is great.

Hey, Josh. Well, you get some of the same effects, whether it’s wildfires or the mudslides, which are really early in 2018. You have a lot of high-value areas that are very-hard to reach. Some of them are even on the sides of mountains. And regulatory abilities get in and even inspect them. So, you have some of that delay. You have a lot of demand for contractor services, not just the rates per hour but the cost of the equipment, and everything else is moving up as well. So, I would say overall that accounts for a lot of it. You also have -- because they are mostly high net worth individuals, there is additional living expenses that tend to accrue, and I would say some are using those liberally.

I just would add one thing is that when we look at the mudslides, which were in the current accident year, there wasn’t a lot of different, as Mark points out, there wasn’t a huge amount of insureds. It was -- one is just being able to get in physically, inspect, assessing all of the different elements of the loss, and then looking at some of the demand surge. And then, you add in all the other components of it, it’s just something that was not able to assess within the first quarter. So, we got a much better look as we progressed throughout the year.

Yes. I’d say that when I looked at our abilities to understand what the CATs are and price them properly, we’ve got a pretty good track record. I think this is a bit of an anomaly, and I think it’s just a unique situation with regard to this particular loss and the insureds. Next question?

We’ll move on to our next question from Kai Pan from Morgan Stanley. Please go ahead.

My first question is on capital management. Given the stock is trading at 60% of book value, do you find it just more attractive to buying back your stock versus other deployments of your capital?

Well, I mentioned earlier, we bought $350 million of stock in the previous quarter; price was around 53. So, I’d say, this price is pretty compelling, let’s put it that way.

We’ll move on to Tom Gallagher with Evercore. Please go ahead.

Can you comment on 2016 and 2017 excess casualty reserve strengthening? How much that was? And how much rate do you think you need on this line now? And also, can you comment on -- I think 3Q had some current accident year true-up in it. How much did that negatively affect the loss pick in 3Q?

Yes. There was a couple of factors on that, one of them relates to the area of focus, which was on CD and wraps, because you have to look at that by policy year and the losses that emerge. I mean, the work or the poor work has really already been done. So, we anticipate some of those accidents occurring from those policy years in ‘16, in ‘17, in ‘18. So that’s causative for some of the drift up, more so in ‘16 and ‘17, and more in ‘17 and ‘18, which you’d expect with a shrinking book on that. So, that’s a piece of it. And on the balance, which will also include ‘18, we’ve made some, I’ll call them market cycle adjustments, associated with where we think we are in the underwriting cycle. Excess casualty is a fairly volatile line of business and more extreme on the underwriting cycle. So, we made some adjustments in that respect. And I would say, lastly, and this is one of the key underwriting strategies of moving attachment points materially. There is some auto exposure coming in on a small set of lead umbrella policies that has some auto exposure, and we’re reflecting that. That would have been more ‘16 and ‘17 though.

Yes. I think, Mark mentioned earlier that the -- we think we’re actually getting margin increases in the excess at this point, just in general. And with respect to construction, Peter mentioned that, I believe he mentioned we are reducing our appetite in that business to a very limited amount.

We’ll move on to our next question from Brian Meredith from UBS. Please go ahead.

Yes, basically just a quick follow-up there. Mark, was there any current year development in the underlying loss or the loss pick in the third quarter in the general insurance operations? And then, a follow-up to that, a lot of the discussion has been on changing limits profiles in reinsurance and all such things. I assume we are going to improve your guys’ loss ratios going forward. When are we going to see that? Because, Brian, I think a lot of the discussion has been improving the expense ratio going into next year, not so much the loss ratio.

Let me answer that one first, and I’ll let Mark talk about the other piece, which is the loss ratios in the third quarter. When do we see it? Well, I think we have seen a little bit already. Mark is talking about margin improvements. So, I said we’re going to get into an underwriting profit next year. A lot of that is expense, no question about it. That’s more immediate. And I’ve mentioned this before and I think Mark would support the same position. And that is, we may believe that these changes are taking place, but we want to see it start to play out in the actual numbers. So, we’re not going to -- we’re going to take a more cautious approach to adjusting loss ratios down as we see the actual results start to show themselves. That’s not to mean that we don’t think there is some improvement taking place. But, we want to make sure that we’re doing this the right way, long-term that we don’t have to go back and adjust upward reserves, because we were a little too optimistic that the improvement took place early. So, you just have to understand how that’s going to play out. But, we do see it coming and we expect that 2019 we’re going to be in an underwriting profit position, not a great one, but a profit. And we’ll move from there to a great one. Mark, do you want to talk about the third quarter?

Sure. Thank you. Brian, I think a more direct answer to your question is in the accident year with 90 basis points of loss ratio impact for the GI level in total by all the causative factors I just mentioned, emanating from the one product line. But, you have to look at it in two pieces. There was the current accident quarter, if you will, which was 30 basis points; then, there was 60 basis points of catch-up, the true-up the first two accident quarters of the year through third quarter. So, 60 plus 30; and so, it’s 90 in total.

We’ll take our next question from Jay Cohen from Bank of America Merrill Lynch. Please go ahead.

Yes. Most of my questions were answered. Just one last one. Selling off part of the Legacy business, can you give us some sense of the earnings impact that that will have?

Well, I think we’ve given you an idea that the ROE is around 3% to 5%. And we’re going to take about 20% of that off. Sid, do you want to do more of the arithmetic than that? But, it’s a fairly simple arithmetic question.

Yes. I think, you are going to see for the full-year that we’ve had an ROE in that range. So, think of it as about 20% off the income is obviously the adjustment for the non-controlling interest.

Great. Thank you.

[Indiscernible] third quarter, because we had this CAT in there and everything taking that out. I think it’s a pretty simple arithmetic. Okay, next question?

We’ll move on to our next question from Erik Bass from Autonomous Research. Please go ahead.

I had a question for Kevin. You mentioned that the ROE for the Life and Retirement business was in line in with your expectations with the level of normalized earnings this quarter was well below where they were in the second quarter and the recent trend, despite benefits from a favorable equity market tailwind and good mortality. So just wondering, were there any other moving pieces to consider in the third quarter, and how should we think about the run rate earnings power for the business?

No. I mean, there were no other unusual moving pieces in the third quarter. I think looking past the actuarial review impact, in the current conditions and especially at the current level of premiums and deposits, which we are enjoying which are higher than we’ve seen for some time, I really consider the third quarter run rate to be within our range of expectations, and the returns in the low to mid double digits is pretty much within the range that we have previously suggested.

And we’ll take our next question from Jay Gelb from Barclays. Please go ahead.

I had two questions. The first is what level of return on equity do you think AIG is capable of achieving, once you start seeing the improvement in property, casualty coming through, thinking about kind of 2020 and beyond? And then, the second question more near-term is, Sid, based on a 25% overall effective tax rate for 2018, that would seem to imply a fourth quarter 2018 tax rate around 30%. Am I am I right on that?

Let’s get that one last. No, you are not right. And, I think Sid will get that to you. So, return on equity. Well, I would say that the -- and you got to have -- we got to recognize we got a legacy return on equity that’s in that 3% to 5% range. But the rest of it, the core I think would be 9% plus and so, weighted average maybe gets into the 8% range. Of course, it depends on where Legacy goes. But, assuming it’s still part of the family, I think that’s the number. Sid, do you want to talk about this tax rate?

Yes. Thank you, Brian. No. I think the 25%, remember is simply intended to be as we look at, we’ve previously suggested that for full-year we’re looking at 21% to 22% excluding tax discrete. And so, as there is lower net income forecasted for the year, given the catastrophes, which would be taxed at 21%, we expect a higher expectation for the fourth quarter. And so, we concluded on our catch-up this quarter. So, it would be at that 25% level is our approximate expectation.

We’ll take our last question from Paul Newsome from Sandler O’Neill. Please go ahead.

Any thoughts on most recent earnings -- or equity volatility, financial market volatility this month on the Life Insurance businesses, both pro and con?

As we’ve reported previously, our hedge program has performed and continues to perform within expectations. Sid, if you have anything else?

No. I think, as you know, we fully hedge for equity markets. And so, we haven’t seen anything in the recent market expectation around our variable annuity hedging program. Just a reminder that of course on the investment side, there are securities in terms of private equity hedge funds and fair value options that do have equity market sensitivity. But, obviously, we need to see how the full year plays out for the Life Insurance business and the investment side there.

Okay. Listen, I think we’re going to end the Q&A. I really do appreciate all your attention. And we had a lot of content, so we cut the Q&A a little shorter than normal. Thank you for your indulgence on that. Before I end the call, I want to recognize the hard work and tireless support that our employees around the world have provided to our customers and neighbors affected by the numerous global catastrophes. Our hearts go out to all of those who’ve been impacted. So, with that, thank you very much.

This concludes today’s presentation. We thank you for your participation. You may now disconnect.