Good day, and welcome to the AIG's Third Quarter 2021 Financial Results Conference Call. Today's conference is being recorded. And now at this time, I would like to turn the conference over to Quentin McMillan. Please go ahead, sir.

Thank you, Jake. Today's remarks may contain forward-looking statements, including comments related to company performance, strategic priorities, including AIG's pursuit of separation of its Life and Retirement business, business mix and market conditions and the effects of COVID-19 on AIG. These statements are not guarantees of future performance or events and are based on management's current expectations. Actual performance and events may differ materially. Factors that could cause results to differ include factors described in our third quarter 2021 report on Form 10-Q, our 2020 annual report on Form 10-K and other recent filings made with the SEC. AIG is under no obligation and expressly disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, some remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website, www.aig.com. With that, I would now like to turn the call over to Peter Zaffino, President and CEO of AIG. Peter Zaffino;President, CEO, Global COO & Director: Good morning, and thank you for joining us today to review our third quarter results. I'm pleased to report that AIG had another outstanding quarter as we continue to build momentum and execute on our strategic priorities. We continue to drive underwriting excellence across our portfolio. We're executing on AIG 200 to instill operational excellence in everything we do. We are continuing to work on the separation of Life and Retirement from AIG. And we're demonstrating an ongoing commitment to thoughtful capital management. I will start my remarks with an overview of our consolidated financial results for the third quarter. I will then review our results for General Insurance, where…

[Operator Instructions] And we will begin with Elyse Greenspan with Wells Fargo.

My first question, when you guys -- Peter, when you make the comment that you think you'll hit sub-90% for full year 2022, and then you said that there would be runway for further improvement in future years, I'm just trying -- when you kind of think 2022 and beyond, what are you guys assuming for both pricing and loss trend as we kind of think out the next year and even beyond that time frame? Peter Zaffino;President, CEO, Global COO & Director: Well, thanks, Elyse. Let me answer the first part why we're so confident that the momentum that we have and the sub-90% combined ratio is achievable. When you look at this quarter and last quarter, just the improvement from the core of the businesses continues to improve at an accelerated pace. And Dave McElroy and the leadership team on the underwriting side, Shane who's now going to move into the CFO role driving AIG 200, just the execution has been terrific. And why we're confident it's just, again, the momentum when we look at the fundamentals of the business, we're growing top line. We talk, Mark and I, about that we're getting pricing above loss cost, developing margin, expense ratio. All of that goes into our confidence. We have higher retentions on a policy count, very strong new business and think that applied to quality. We have more relevance each quarter in the marketplace. And so the assumptions are modest. It's not that it has to stay in the same pricing environment. But it is one that we are going to continue to be very disciplined of driving profitability and making sure that where we're deploying capital, that on a risk-adjusted basis, we're going to be getting margin. So I think that -- again, I don't want to give guidance beyond that but feel that next year, we have the momentum. We're executing on all of our strategic imperatives, and we're delivering the results.

Okay. And then my follow-up on -- you guys said that the Life IPO should take place in the Q1, perhaps in the second quarter of next year. How do we think about capital return? I know you guys have laid out a plan for this year, but how should we think about capital return next year? And is that dependent on when and the ultimate size of what you bring to market with the Life and Retirement business and the IPO? Peter Zaffino;President, CEO, Global COO & Director: Well, we've been trying to give a lot of guidance in terms of what we intend to do in the short run because of a number of moving pieces. We have strong liquidity, which is what we had talked about in the prepared remarks. Some of the big moving pieces as we get to the back half of the year will be the affordable housing proceeds, the closing of Blackstone, the fact that we're going to continue to execute on debt reduction, share repurchases. And I think as we get to the fourth quarter call and we have a better line of sight in terms of what we think the actual timing will be on the IPO plus liquidity at year-end, we'll give further guidance as we move forward. But for now, I think we're just going to stick with what we've outlined, and we continue to execute on that each quarter.

We'll now take the next question from Meyer Shields with KBW.

I guess first question for Peter. You laid out a pretty conservative case for the frequency and severity of catastrophes. How should we think about what Validus Re is interested in writing in that context? Peter Zaffino;President, CEO, Global COO & Director: Thanks, Meyer. Well, I mean, Validus Re, since we've acquired them, we have not increased risk appetite. And as a matter of fact, they take a very conservative position in terms of their nets. And I think that was evidenced in the quarter in terms of our overall CAT number. That's number one. I think Chris Schaper and the team have done a terrific job of diversification on the portfolio. So we've reduced our aggregates in peak zones, such as Florida, significantly from the original portfolio that we acquired. We're getting better balance in the portfolio across the world, and that's with multiple perils and multiple geographies. So I think that, that continuation of that strategy of getting balanced diversification and making sure that we're not taking significant nets in the portfolio and making sure that we're driving risk-adjusted returns as we look to 1/1 is going to be very important for Validus Re. But we've been executing on that throughout the year.

Okay. Understood. And then as a follow-up for Mark, is there any way of describing the -- I mean you made a very strong case for conservatism in the current accident year loss picks. And I'm wondering how you're thinking about that level of conservatism in recent accident years as of 9/30. Peter Zaffino;President, CEO, Global COO & Director: Go ahead, Mark. Mark Lyons;Executive VP & CFO: Yes, thanks. Yes, thank you, Peter. Thanks, Meyer. Actually, we feel very good about accident year '20 and '21, I think the core of your question. And I think I've made a pretty strong case for the changes that have occurred, which I think have been, I think, pretty enormous on it. And interestingly, overall, I'm confident not just in the current accident years. I'm confident where we are now on the reserve position even and for Financial Lines and in total across the book. And you could kind of say, well, why are you confident? And there's a lot of reasons for it. I mean when Dave McElroy and his group got in here, they started making some pretty material underwriting changes step by step. And I think it's just endemic upon the analysis of it for not only the past years but the current year is to focus in on exactly what those changes were and then go back with a very tight eye to look at it. And that's exactly what we did. But the transformation of the book, as I itemized on private not-for-profit and public, has been enormous. So I feel very strongly about where we are on those recent years. Peter Zaffino;President, CEO, Global COO & Director: Mark, since you mentioned Financial Lines, I think maybe Dave can provide some context as to some of the changes and how he's looking at the portfolio. So Dave, maybe you can add to what Mark commented on.

Yes. Thank you, Peter. Thank you, Mark. The -- I know it's probably top of mind, but the Financial Lines book has been one that has been stored at AIG. And most of you know I've been involved with P&L and Financial Lines for my entire 40-year career. So I've seen the bodies float by me. I've seen the strategies avowed and disavowed. And we knew exactly what we were doing when we came in here to look at this portfolio. So today, I would say that both North America and International are completely different and fundamentally different books than what we had in the '16 to '18 cohort years. That's personal to me. That's also Michael Price, who's running North America for us. But we did the things that are -- that matter, and we've been doing it across all of our lines of business in terms of risk selection, limit management, portfolio balance, the diligence on terms and conditions. Mark talked about a little bit on private, and then we're measuring it on claims. So the -- this is what this -- I view this as the story that we needed to complete. Mark hit our public company book. That is by and large the measure of a D&O underwriter. And if you're in the public company space, you're talking about your securities class action exposure, and the 67% of your annual loss costs are driven by those cases. So when you think about that, it's a math equation of 200 of these are normally filed out of 5,500 total public companies. So risk selection matters. What we found here was probably chasing premium versus chasing quality accounts. So we might -- we were overweighted in technology and life science and health care and new economy and unicorns…

And then, by the way, we have gotten compounded rate increases of 100%. So I apologize, that's... Peter Zaffino;President, CEO, Global COO & Director: That's terrific. Thank you.

Next, we'll hear from Michael Phillips with Morgan Stanley.

I'll be -- 2 quick ones, I think. Mark, your comments on, again, the loss pick thing. Number two was, I think, about well the current stuff and it's long-tailed, and that can lead to risk. And so we're going to be conservative, it looks like the industry. I think that was your number two. Can you tell us, has there been any kind of shift in your book given everything else you guys have done and -- from occurrence to claims-made in the Commercial Lines book? So anything noteworthy that would shift away from occurrence to claims-made? Mark Lyons;Executive VP & CFO: Great question, Michael. So I would say there's only a handful that are really claims-made, right? It's management liability, it's professional indemnity that really drive it, and super tough product liability case is really claims-made. It's one thing to shift it gross, it's another thing to ship it net, right? So as we've used different reinsurances over time, that changes the proportions. So we're comfortable with the mix of occurrence and claims-made. There's growth in Financial Lines, as Peter pointed out. And there's some growth in Excess Casualty. The nets are somewhat different but we think appropriate for what we're doing.

Okay. Perfect. And then maybe just a real quick point on one, too, on the last question to Dave's answers in the professional lines. There's clearly lots of concerns in the past 18 months or so because of securities class actions and IPOs and SPACs. Would you say given all Dave's comments there that you think your exposure to that type of risk is pretty limited? Mark Lyons;Executive VP & CFO: Well, yes, I think how Dave explained it is the way the business actually flows, the business actually works. So the key thing is upfront identifying the right classes and the right risk, which they've really done, I think, exceptionally well. And then the second is what goes through the court systems. Given that you have SCAs, even though we are massively reduced in the SCAs, you got to go through all the motions to dismiss and other procedurals that take it there. So that's what Dave's comment about 3 plus -- 3 to 5 years has to work its way through the court system. But given our reduced exposure, back to a similar answer, that makes us feel so strongly about the recent accident years.

Next question, Josh Shanker, Bank of America.

At the risk of being labeled a pariah, I'm going to go back to the D&O questions a little bit. Can we talk a little about the accident year picks, not necessarily for AIG, although it can be, what sort of combined ratios were '16, '17 and '18 producing in retrospect? We've seen tremendous pricing come through. Is D&O business broadly for the industry written in those years being written at a substantial underwriting loss? And the extent to which you took the reserve charges in this quarter, a lot of the business, I assume, was syndicated. Are the syndicates feeling the same kind of pain that you are? Or are you getting ahead of what you think are losses to come? Peter Zaffino;President, CEO, Global COO & Director: Mark, why don't you comment on Josh's question on loss ratios? And then I think Dave should talk about the pricing. Mark Lyons;Executive VP & CFO: Josh, I know you're speaking of business. And if you go back -- because speaking to the industry is a little different. I don't want to get out ahead of the industry, but I know you're a schedule fee guy. You go back and look at that, of course, that's U.S. only. And you can look direct, not just net. And that's a combination of management liability and professional, right, in there. But we know it's dominated by the management liability side. So you can go back and look at the annual statements through 2020 and get an idea. But with regard to syndication, and Dave will pick this up better than I will, but generally, primaries are 100% written. And as you go up the tower, there could be some co-participations, but it's not syndicated like in a huge property transaction the way you're thinking of it. But Dave, do you want to pick that up?

Yes. Thanks, Mark and Josh. Yes, the only thing I'd say there is that you've seen a lot of variability in the schedule piece in terms of portfolios over the years. There can be 40- to 50-point differences consistently. So that speaks to risk selection and the portfolios. But that said, there's definitely verticality that's been happening in those years. That is showing up in the 2019 and 2022 -- 2020 years because the courts did not close for this motion to dismiss and the securities class action. So in fact, if you look at Cornerstone, there were the equal number of settlements in 2020 during COVID that there were in 2019. So verticality still exists in this business, market cap loss, disclosed damages and what that happens. So I think there's a lot of immaturity in those years that will continue to show up because the cases are still sort of fermenting. There's a 3- to 5-year window on these claims made. It all ties to the motion to dismiss, but they continue to be argued. I think what we saw was a lot of them were argued, and then when they're decided on -- in the client's behalf, then you start negotiating settlements, okay? If the company wins, they normally go away, therapeutics or defense costs, but that's still an unknown in that '16 to '18 cohort year as the verticality of loss for those cases, okay? A number of them got settled in '20. There's a number that are still getting settled in '21, and there'll still be a number that will be settled in '22.

I'm going to hold it to one question for you guys, and just congratulations on everyone's new role.

Brian Meredith with UBS. Peter Zaffino;President, CEO, Global COO & Director: And if it's a financial question on the Financial Lines, it will be the last one because I'm going to have to turn it over to Dave again.

I'll give you a broader-based one. Peter, if I look at the return on attributed equity for the General Insurance business right now, you had some corporate costs there. It's still below a double-digit return on equity. I guess my question is, is that your goal to achieve a double-digit ROE in that business? And what does the underlying combined ratio need to be in order to achieve that given the kind of current catastrophe outlook and interest rate environment? Peter Zaffino;President, CEO, Global COO & Director: Thanks, Brian. As we've said in the past, and I really have the same answer, which is we're really focused on driving the profitability earnings, reducing volatility. We're making great progress on the combined ratio, looking at the investment portfolio over time to have less volatility on the Property and Casualty side. We're working through the separation. And it's hard to give you an answer in terms of the absolute combined ratio and returns until we know all the math in terms of the numerator and denominator. Meaning we just need a little bit more time over the next couple of quarters to separate Life and Retirement, have the path of the IPO and the capital structure that we'll outline in more detail for you. But we know that, that is an important guidance in terms of when we are in future state, and we'll work towards that. But I think now with the number of moving pieces between the 9.9% in terms of what we're doing to set up the IPO and what we're doing with General Insurance in terms of growth, we see a lot of opportunities to grow with margin and with improved combined ratios over time. And so that's really the primary focus now that giving the ROE guidance once we know the variable is a little bit more fixed, we can do that.

That's fair. And then just one other just quick one. Have you done any work or maybe just some general perspective on what LDTI could mean for your Life Insurance business? Peter Zaffino;President, CEO, Global COO & Director: Well, we are in progress of implementing the new standards and working through it. And so we're analyzing the guidance that's been issued today, formulating approach. We know that we have the IPO coming up, so we have an enormous amount of resources on it. But it's really just too early for us to provide the estimates. But it's a key area of focus for the company and one that we'll give guidance as we get in subsequent quarters. Thanks, Brian. I think that's going to wrap it. Look, I really appreciate it. Appreciate the time. I want to thank all of our colleagues for all the great work, and I hope everybody has a great day. Thank you.

And with that, ladies and gentlemen, this will conclude your conference for today. We do thank you for your participation, and you may now disconnect.