Good day, and welcome to AIG's First Quarter 2022 Financial Results Conference Call. This conference is being recorded. Now at this time, I would like to turn the conference over to Quentin McMillan. Please go ahead.

Thanks very much, Jake. 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, including our annual report on Form 10-K and quarterly reports on Form 10-Q, provide details on important factors that could cause actual results or events to differ materially. Except as required by the applicable securities laws, AIG is under no obligation to update any forward-looking statement if circumstances or management's estimates or opinion should change. Additionally, today's 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 at www.aig.com. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino. Peter Zaffino;President, CEO, Global COO & Director: Good morning, and thank you for joining us to review our first quarter financial results. I'm very pleased to report that AIG had an excellent start to 2022. We are successfully executing on several strategic, operational and financial priorities, and our team has significant momentum on many fronts, which we believe will continue throughout the year. Following my remarks, Shane will provide more detail on our financial results, and then we will take questions. Mark Lyons, David McElroy and Kevin Hogan will join us for the Q&A portion of today's call. Today, I will cover 4 topics. First, I will outline the tremendous progress we've made towards the separation of our Life and Retirement business, which will be renamed Corebridge Financial. Second, I will review the excellent first quarter performance of General Insurance, where we continue to drive top…

Thank you, Peter, and good morning to all. I am very pleased to be AIG's CFO, and I look forward to working with everyone moving forward. I will provide more detail on our first quarter financial results and unpack a number of our key performance metrics, specifically EPS, liquidity, leverage, net investment income and ROCE. I will begin by going through the financial results of the businesses in the quarter. I will then touch upon the balance sheet, leverage and liquidity, which benefited from excellent execution on a number of capital transactions. I will then supplement Peter's remarks on the separation of Corebridge, including the arrangement we announced with BlackRock and liability management actions we recently completed. I will then spend some time on investment income and will provide insight on the impact of rising interest rates. And finally, I will talk about the execution path towards our long-term 10% ROCE goal for AIG, including income drivers, AIG 200 and other areas of corporate GOE reduction. As Peter mentioned, adjusted EPS attributable to AIG common shareholders grew 24% year-over-year to $1.30 per diluted common share compared to $1.05 per diluted common share in 1 quarter '21. Compared to the first quarter '21, improvements in General Insurance contributed $0.33 year-over-year, reduction in share count contributed $0.07 and lower interest expense contributed $0.04, offset by Life and Retirement being $0.19 unfavorable primarily due to $0.20 unfavorable due to lower net investment income. General Insurance's adjusted pretax income contribution in the quarter was $1.2 billion, which reflects strong underwriting profit, growth in Global Commercial and continued improvement in both the GAAP combined ratio up 590 basis points to 92.9% and the accident year combined ratio ex CAT improving 290 basis points to 89.5%. The combined ratio improvement was due to improved underwriting, premium…

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

My first question is on the capital return that you guys laid out. So you guys have just over $9 billion at the holdco. Peter, I think you said a minimum buyback of $1 billion for the second quarter. But just given that you have above $9 billion at the holdco with additional capital coming later this year, I would think that there's some flexibility to perhaps go above that $1 billion. So can you just kind of walk us through a little bit more how you're thinking about uses of capital for growth relative to buyback at least in the short term? Peter Zaffino;President, CEO, Global COO & Director: Yes. Thanks, Elyse, for the question. Yes, we said we would do a minimum of $1 billion of share repurchases in the second quarter. I think Shane and I tried to do as much detail as we could in our prepared remarks in aligning what our priorities are for capital management. And certainly, the Board's authorization for an additional $5 billion says that we will continue to return capital to shareholders in the form of share repurchases. We think the positioning of the business, I mean, I think you see in the results, we see great opportunities for top line growth. We see it across the world. We see it in the commercial businesses, but also what you would have seen in some of the international that's probably [ amasses ] that. Accident & Health has started to rebound over the last 3 quarters, and we're starting to see top line growth there. So we want to make sure that we are allocating the appropriate capital for growth in driving margin and making the company look at its opportunities on risk-adjusted returns and make sure that we're capitalizing on the market and our discipline. I think really, when we get to the actual IPO and Corebridge as a public company, we'll be able to outline the capital management strategy in more detail. But we wanted to provide as much guidance as we could based on what we know today, and we would expect to continue to make the progress that we've demonstrated in the earnings call today.

Okay. And then my follow-up, you guys pointed out that you raised some of your severity assumptions within General Insurance on the short-tail side. When you guys set out that target for the accident year combined ratio of sub-90 for this year, was that contemplated? And then should -- how about the cadence, can you give us a sense? Should we think about sequential improvement from the Q1 level as we move through the year? Or is there some seasonality that we should be considering within General Insurance? Peter Zaffino;President, CEO, Global COO & Director: Let me take the first part, and then I'll ask Mark to comment on the loss cost observations. We've seen -- when you think about the quality in the results that we produced this quarter, when we look at our business, what do we look at? We look at client retention, which continues to improve. We look at new business, so we're acquiring a lot of new clients across the world. And so that continues to progress and think that there's a lot of momentum there. We look at rate above loss cost trends. And so that was favorable, and we continue to get rate in areas where we believe it is required in terms of its risk-adjusted returns and, again, with our leadership in terms of deploying capital. Are all the inflation factors considered in the sub-90? Well, no. We obviously are adjusting them, but the outperformance that we have been driving wasn't contemplated either. I mean like we're making more progress on the business at a faster pace and think that we will continue to show that we can grow the business top line and generate the risk-adjusted returns and improvement in combined ratios. Mark, do you want to comment on the loss cost? Mark Lyons;Executive VP & CFO: Yes. Thank you, Peter. So I think Peter answered it very well. But what I'll do is just reemphasize that, yes, I mean the context of your question, we gave that original guidance before there was any spike of inflation. But like I think any good company, you don't forecast just a point estimate. You're forecasting a range, and those ranges vary by line of business, and they all meld together. And even with the changing inflation assumptions, we'd still be inside that range. So we're comfortable with that.

We'll go to Meyer Shields with KBW.

I think this might also be a question for Mark [ as to tax query ]. We're clearly seeing a little bit less core loss ratio improvement than the simple mathematical application of earned rate increases and loss trend. And I was hoping you could talk about how that's manifesting itself in prior year reserve reviews. Peter Zaffino;President, CEO, Global COO & Director: Yes. Mark, please take that. I mean I think it's also important to give some context of the portfolio shift as well, Mark, when we look at loss ratios? Mark Lyons;Executive VP & CFO: Yes, happy to. And thank you, Meyer, for the question. So I think on that side, first, on the reserve side, when you look at our view of inflation and severity trends and so forth, you really got to separate short-tailed lines from longer-tailed lines, right? And like in our view, the evidence within our own information as well as looking at external indices, whether it's from the perspective of the purchaser or the seller, it's clearer with -- in property-oriented lines. And it's probably worth noting, back to Peter's comment on mix, is that less than 10% of our pre-ADC reserves are property. So it can't move the needle too much anyway. So I don't really view that as an issue. And in terms of nonproperty, we've gone through looking at various basis point scenarios of lift and for various durations associated with it. And we still feel that all of that is pretty contained. And don't forget, especially on longer-tailed lines, there's still a high proportion of total reserves subject to the ADC on recoverables as well. So in terms of the -- your first part of your question with regard to the arithmetic versus what's there, I think we've addressed this before, Meyer, but I'm happy to give some comments again. which is the book has changed so dramatically from policy year '18, '19, '20 '21 and its accident year conversions that you need a margin of safety associated with it because nobody backs a thousand on these things. But there's been a radical change in the quality of the risk, the distribution strategy that Dave McElroy and his team have instituted getting much better risk portfolio churn purposely done to improve it, all the limit changes that Peter has talked about over time. And as a result, the arithmetic just doesn't pan out, let alone the change in mix that has been purposeful, let alone the change in net mix. So all of those changes simultaneously require, in our view, a reasonable range of margin of safety, and that's what you're seeing.

Okay. That's very helpful. A quick follow-up, if I can. I know there are a lot of moving parts, but is there any way of quantifying the impact of the reinsurance purchasing timing on the expense ratio in the quarter? Peter Zaffino;President, CEO, Global COO & Director: Thanks, Meyer. I'll take that. As I said, it's going to be a headwind in the first quarter will be a tailwind in the second quarter. Once we -- there's a couple of moving pieces. We can't really provide the exact numbers, but you can look at like in the second quarter where we purchased down on the North America Commercial CAT to lower retentions as well as in AIG Re, where we reduced volatility by buying single shop per occurrence retrocessional at the second quarter, and both recovered by the way, last year. So we felt that reducing the net retentions was appropriate and carrying that forward into how we were going to structure the 1/1 treaty for AIG as well as the retrocessional covers for AIG Re. So we have lower nets than we would have at this time last year. It's not uncommon to purchase sometimes midterm if there's available capacity and you're still trying to evolve a program, but we felt very good about the consolidation of those programs at 1/1 and really like the reinsurance that we have in both instances.

And now we'll hear from Ryan Tunis with Autonomous Research.

A couple of questions, just following up from the first 2 question askers. First one, we saw about 3.5 points of sequential loss ratio improvement this quarter in Commercial Lines in general. I noticed that, last year, we also saw like the biggest sequential move in the first quarter. So I'm curious if there's something about 1Q, if it's setting a loss pick assumption or something like that, that's leading to that level of sequential jump that's outsized. Peter Zaffino;President, CEO, Global COO & Director: Yes. Let me start. Thanks very much for the question. We have -- there's -- Mark touched on a little bit, and I'll ask if he has any additional comments after I make a few observations on the mix of business. But what we have in the first quarter, obviously, is a big AIG Re, which when you look at if you're changing the composition of the portfolio from reducing CAT to doing more proportional, you're going to have lower loss ratios, higher acquisition costs. And so that will have a sometimes impact in terms of how it earns into the first quarter. We also had, in terms of the overall General Insurance business, the mix changes because, on the one hand, we wanted to make sure that we were patient with A&H, which is a great business for us and Travel in terms of its rebound after COVID but not really reducing the overall overhead. But it does have an impact in terms of the mix and acquisition expense and loss ratio. The other thing you have to consider where we started, I mean, the incredible improvement that we've had in the portfolio has been disciplined. We've always talked about underwriting from a risk selection standpoint, terms and conditions, attachment, reducing volatility with supplementing…

Got it. My follow-up just on the acquisition cost ratio. When you think about the reinsurance purchasing, the ceding commissions, the change in the mix, can you guys make a directional assessment at this point about should the acquisition cost in General Insurance, should that ratio be higher or lower in 2022 over 2021? Peter Zaffino;President, CEO, Global COO & Director: It's hard to predict. I think your first part of the question is do ceding commissions as they start an earn-in benefit, the overall expense ratio. The answer is yes. It wasn't always the case when we were starting the turnaround and -- but today, we have market terms or better on ceding commissions, and that starts to earn in. But I hate to go back to Travel and Accident & Health. I mean those really dipped during the pandemic. And the U.S. rebounded first. International is starting to rebound. And those businesses just by its nature of how they're set up have lower loss ratios and higher acquisition expenses. So it's hard to predict. I mean what's the recovery look like, what's our growth look like, what's the mix of business look like? So it's really hard, Ryan, to give a forecast in terms of what the impact is. What we will focus on all the time is improvement in accident combined ratio. So we're not going to be shifting from one category of loss ratio in [ DAC ] or back. I mean we're going to make sure we're focused on the portfolio optimization and mix of business to improve the overall results.

And now we'll hear from Alex Scott with Goldman Sachs.

First question I had is just on the Life and Retirement side. When I look at the 10% ROE, it held up well in a tough environment. But that said, I think the skeptic would kind of point to the alternative returns and how strong they were and whether that can continue. But at the same time, there were probably some other things in there. I think probably DAC true-ups and things like that related to the markets would have hurt you. Without maybe the details, it's a little hard from the outside to tell sort of what the ROE is running at on a run rate basis at the moment relative to that 12% to 14% that you all have highlighted. So could you talk about that a little bit and how we should think about sort of the level of ROE that you think you can earn right now? Peter Zaffino;President, CEO, Global COO & Director: Thanks, Alex. I mean as you can appreciate, preparing for the IPO of Life and Retirement, we do have constraints in terms of how much detail we can go into. I think if you look at the S-1 in terms of how we believe we can drive a 12% to 14% ROE over the long term is something we're very confident about. And if you look at the historical performance of Life and Retirement in terms of its ROE and attributed capital, they've done very well. I mean, Kevin, keeping in mind, we've got to be very careful. Do you want to provide maybe 1 or 2 items of your observations on the quarter?

Yes. Thank you, Peter, and thanks, Alex. It really is about the combination of the lower equity markets, which do impact the DAC and SI due to the lower present value of the fee income. That's kind of a one-off item. It's not expected to be continuing. And then, of course, we have the increased SOP reserves, and these are things that will be much less of an impact under LDTI. So it's really the onetime impact of that. And then in terms of interest rates, right, with the increased rates, that does very much affect call tender income on a real basis, CML prepays and, with the direction of the markets, the fair value options. And I think we've provided that detail both in the deck for today on Page 11 and also in the fin sup. Peter Zaffino;President, CEO, Global COO & Director: Alex, is there another question?

Yes. Maybe as a follow-up, just going back to the ROE improvement over time. some of those items certainly will take some time. And I don't know if you want to put a specific time frame around it. But I guess the piece of it that's related to corporate cost reductions, I mean for that piece specifically, over what time period do you think you'd be able to sort of take out, call it, stranded costs associated with the separation? Peter Zaffino;President, CEO, Global COO & Director: We provided a lot of detail in Shane's prepared remarks. And so I don't think it's really worth going back and going through point by point. But the most important thing for us at this stage is to sequence really the strategic initiatives we have in front of us, the most important being right now, the Corebridge IPO. So like that's a big project in itself and making sure that Corebridge is set up to be a separate stand-alone public company and getting the IPO away. Also making sure that all of the things that are done at AIG today that need to be transferred over or worked with Corebridge is the next highest priority. And we have a -- our parent expenses, you have to think of it as parent and what is General Insurance today coming together as one company. And coming together as one company, we want to be very thoughtful about the business we're in, in the future, what is a target operating model and how do we sequence that in a manner that we are not creating any risk with all the things that we have going on strategically and that we get to the right outcome in the end. And I think our track record has demonstrated, whether it's the underwriting turnaround, AIG 200, what we're doing in terms of Corebridge. You should be highly confident we'll do it at a pace that is certainly front of mind but, at the same time, making sure that we have all the very important pieces of what we're doing in the separation done very well. And so like that's kind of the time frame. But it's really not going to be what month, what quarter, it's going to be how do we execute things and then sequence the next priority, which will be how we bring parent and General Insurance together. If I may, let me just -- I just want to thank everybody for our clients, our distribution partners and our colleagues have been tremendous in terms of the work that they've done and the contribution that they've driven to get to these results. So everybody, have a great day. Thank you for your time.

And once again, ladies and gentlemen, this does conclude your conference for today. We do thank you for your participation, and you may now disconnect.